EUR 850.00 For Business Accounts Only

Morningstar | Anhui Conch’s 2018 Positive Profit Alert Within Expectation; Shares Undervalued

Narrow-moat Anhui Conch Cement guided that 2018 net profit will increase by 80%-100% under PRC accounting standards. Our 2018 earnings forecast is at the lower end of the guidance. We retain our fair value estimate of HKD 52 per share (CNY 45.50 per share) and we think shares are undervalued at the current price level. While there are concerns on the slowing economic growth in China, we believe Anhui will continue to benefit from the government’s supply side reform and we have seen the government selectively increasing spending on infrastructure projects. In addition, we have already factored in slowing earnings growth in Anhui’s earnings to reflect China’s transition to a consumer-driven economy.

Anhui attributed the significant rise in earnings to higher selling price of the firm’s products, largely due to the government’s supply side reform and continual improvement in the demand/supply situation in China. We will issue an update pending more detailed information from the firm’s final results in late March.