China: Huaxin issues profit warning

Huaxin Cement, LafargeHolcim’s subsidiary in China, has warned that it expects 2015 net profit to fall 90-95 per cent YoY due to weak domestic demand, intense competition and a sharp fall in cement prices.

JP Morgan’s China cement research team estimates that cement prices in Huaxin’s key markets declined by five per cent QoQ in 1Q16 to-date to CNY254/t.

The research house also notes that LafargeHolcim aims to restructure its China operations by integrating the management teams of Huaxin and LSOC, by selective right-sizing of Lafarge Shui On Cement's (LSOC) footprint, and improving operational performance. Huaxin recently appointed 10 VPs to the its management team with many from LafargeHolcim. Last September, Huaxin signed an operating service agreement with subsidiaries of LSOC. Under the agreement, Huaxin will provide operational, technical, treasury and other services with LSOC being charged a service fee to Huaxin.

While the profit warning and weak start to 2016 should see earnings downgrades continue, JP Morgan says it expects Huaxin Cement to "respond positively to government supply reform policies, accelerating industry consolidation, along with [LafargeHolcim] initiatives."