Moody's: Conch Cement's 1H15 results are in line with its A3 rating

Moody's Investors Service, (Moody's) says that Anhui Conch Cement Co Ltd's 1H15 results are in line with its A3 issuer rating and stable outlook.

"Conch's strengthened market position and maintenance of low debt leverage in 1H15 continue to support its A3 rating, despite the pressures from industry overcapacity and the slowdown in infrastructure and property developments," said Franco Leung, a Moody's Vice President and Senior Analyst.
Conch's revenue declined 15.8 per cent to CNY24.2bn in 1H15 from CNY28.8bn in 1H14.

This trend was mainly driven by a 16.44 per cent decline in its average selling price for cement to an estimated CNY211.5/t (tax excluded) during 1H15, against the backdrop of both slowing demand growth and lack of reduction in oversupply in the cement industry.

Conch's gross margin fell to 27.2 per cent in 1H15 from 33.2 per cent in 2014, as lower raw material costs and other cost reduction efforts were insufficient to offset the substantial decrease in product prices. Nevertheless, such a level for its gross margin is still above the industry average thanks to its low cost position and its market leadership in many provinces.

Moody's expects top-line growth will be limited and margin recovery will be difficult over the next 12 months, as demand in key-end markets should remain soft compared to the past.

However, the adverse industry environment should result in the removal of production capacity which is based on old technologies and also in consolidation in the cement industry, which will benefit industry leaders such as Conch.

Conch's market share is estimated to have increased slightly to about 11 per cent in 1H15 from 10 per cent in 2014 according to the company. Its sales volume rose by 1.6% year-on-year through the ramp-up of newly completed capacity and the acquisition of existing capacity , versus a 5.3% year-on-year drop in national production volume in 1H15.

"Despite the weakened level of earnings, Moody's expects debt leverage over the next 12 months to remain consistent with its standalone credit profile," says Jiming Zou, a Moody's Vice President and Senior Analyst, and Local Analyst for Conch.