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ANHUI CONCH CEMENT CO. (914.HK)

​AM Capital initiates with Outperform on Anhui Conch Cement Co. (914.HK) with a 12-month target price of HKD 25. The Cement sector in China is currently struggling with massive oversupply and high leverage. We believe the worst is over for the sector and it is poised for rebound. The sector is undergoing structural changes to cope with the challenging times. There is increased push from the government to consolidate the sector and phase out inefficient units, thereby decreasing supply. The demand side too is being supported by massive government investments in infrastructure assets outside China, particularly in the “One Belt, One Road” project.

Within the sector, Anhui Conch looks the best poised to convert these challenging times into an opportunity as it seeks to leverage its strong balance sheet and buy accretive assets. The recent power reforms by the government, wherein tiered pricing has been introduced, will further aid the company as inefficient cement producers will have to pay higher per unit power. Anhui Conch with its industry leading efficiency (EBITDA margin 29.7% in FY15 vs avg. EBITDA margin of 8.6% for peers) will gain competitive advantages form the changes. We expect the company to lead the cement sector during its rebound and emerge stronger from the challenging times.