Anhui Conch Cement’s first-half net profit of CNY6.8bn (US$932m) is lower than expected, falling 32 per cent YoY. The decline is due to lower average selling prices and weak cement demand.
Conch still outperformed the industry given that some of its peers delivered a sharper drop in earnings. Morgan Star has lower its 2023-25 earnings forecasts by 18-19 per cent.
While Morgan Star still expects a recovery for the sector, it forecast that this would be gradual, given China’s sluggish economic growth and the slow recovery in the real estate industry.
Management expects that cement demand in the 2H23 will be supported by infrastructure spending as government-led projects commence. Meanwhile, although real estate investment will remain low, demand is expected to improve through 2025 at a gradual pace. On a positive note, cement prices have stabilised recently following the improvement in weather conditions in China.
Morgan Star expects to see more cement producers cut capacity or exit the market given the tough operating environment. It sees it as a good opportunity for Conch to further consolidate its leadership position in the market and should allow pricing pressure to lessen.
