refer to important disclosures at the end of this report

ed-JS/ sa-CS / DL

Asian Insights SparX

Environmental, Social and Governance Refer to important disclosures at the end of this report

DBS Group Research . Equity 16 Mar 2021

Blending carbon-neutral cement • Low carbon and climate awareness initiatives of China-based

producers (55% of global output of cement) are key to achieve

global carbon neutrality • Additional R&D by the industry should lead to lower opex per

carbon captured from 2025 onwards (based on our optimistic

scenario of less than US$25/tonCO2). Moreover, we believe

the carbon pricing mechanism is earnings neutral for China

producers, while development of an emissions trading system

is longer term positive as the market should be receptive and

willing to pay a premium for “GREEN” labels • From an ESG perspective, our stock selection relies on

management’s commitment and viable strategies to adapt to

changes, and transition risk. Our preferred pick is Anhui

Conch (914 HK).

HSI: 28,834

Analyst

Duncan Chan +852 3668 4181 [email protected]

Recommendation & valuation

Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)

Pr ice

HK$

Target

Pr ice

HK$ Rec

Mkt

Cap

US$m

FY21F

PE

x

Anhui Conch (914 HK) 51.95 60.00 Buy 41,830 6.6

CR Cement (1313 HK) 8.92 10.50 Hold 8,021 6.6

CNBM (3323 HK) 11.16 14.00 Buy 11,963 5.1

Asia Insight SparX

Environmental, Social and Governance

Table of Contents

Investment summary 3

2030 or 2060 – a China-centric story 4

Possible initiatives to address transition risk 5

Progress in climate resilience and disclosure 9

Our studies on climate financial impact 11

Our stock picks 13

Asia Insight SparX


Investment summary

This is our second report of a series of DBS’s Climate Change report with a

focus on the cement industry. To put this in perspective, cement is a key

material to produce concrete for use in the construction sector. Cement

production has remained relatively flat over the past five years. According to

IEA’s forecast, global cement demand is projected to grow at 0.4% CAGR to

4.7bn tons during 2020-2050. The increase is largely from the rapidly

growing and urbanising economies of China, which constitutes 55% of

global production, followed by India and Africa, as demand from these two

economies is expected to triple over the next three decades. According to

IEA, cement production generates around 2.2Gt of carbon dioxide (CO2) per

annum, accounting for about 7% of industrial energy consumption and 26%

of direct industrial CO2 emissions.

We acknowledge a common goal to accelerate the change towards low-

carbon energy systems to limit the rise in global temperatures to well below

2ºC (ideal is 1.5ºC). There are at least three decarbonisation routes (i.e.

carbon capture and storage, alternative fuel consumption, and demand

management) for the cement industry to achieve net-zero CO2 emissions,

requiring closer collaboration among producers, consumers, regulators and

stakeholders. Such a carbon neutral vision should not be impaired despite

the economic disruption arising from the Covid-19 outbreak.

The 2018 IEA and Cement Sustainability Initiative (CSI) Technology Roadmap

estimates that 3% of CO2 emissions reductions from today until 2050 will be

achieved by thermal energy efficiency improvements, while 48% will be

driven by the deployment of carbon capture and storage (CCS) technology.

Research by Chatham House suggests that innovations in low-clinker and

novel cement could achieve emissions reductions of more than 90%

compared with traditional Portland Cement17.

After all, we believe that companies that are not developing new

technologies face risks of being left behind. R&D and deployment of low-

carbon technologies is has become imperative.

Riding on the declining cost of new technology development, we believe

the theoretical operating cost of adopting carbon capture technology can

drop by less than US$25/tonCO2 by 2025, representing largely >3% of

expense for the end customer. Apart from that, we expect carbon

emissions trading in Europe and nationwide roll-out in China would

benefit cement producers in terms of product (GREEN) differentiation and

monetisation, enabling carbon reduction targets to be achieved.

In this report, we also highlight research from Transition Pathway Initiative

(TPI) – a robust approach in climate change research based on two-

dimensional analysis. Based on TPI research 2019, Chinese producers are

ranked low in both emission intensity and management quality in the past

three years (2017-2019). Our qualitative assessment based on 12 listed

China cement producers demonstrates improvement potential, in terms

of both commitment in climate risk management and proactiveness in

international partnership initiatives.

Our basis for cement producers are: (1) producers have to possess clear

vision and targets in reduction of emission, and sound business strategy

to mitigate transition risk, and (2) transparent disclosure (highest

standard) and efforts made to improve disclosure for regulator and

stakeholders to monitor that production processes to be pollutant-free.

As such, we identify Anhui Conch (914 HK), China Resources Cement

(1313 HK) as two emerging industry role models.

Asia Insight SparX


2030 or 2060 – a China-centric story

Number crunch: 7%, 26%, 55%

▪ Background: 7% of industrial energy consumption, 26% of direct

industrial CO2 emissions came from cement production

▪ China (55% of global cement production) to determine overall

reduction progress

▪ Direct CO2 intensity is required to decline each year to meet carbon

neutral target, versus +0.5% in 2014-2018

To provide some colour, CO2 emissions are generated both from the

production of clinker (representing 50% of CO2 emissions from cement

production), fuel combustion (40% of total) and the balance of 10% from

the remaining production process. In this report, we will provide a bigger

picture on this issue and our major data sources are from International

Energy Agency (IEA) and Transition Pathway Initiative (TPI).

Cement production and consumption are driven by rising population,

urbanisation and infrastructure development. Regions such as China and

the Middle East have excess cement production capacity with cement

production intensity well above global levels (1818 kilogrammes (kg) of

cement produced per capita in China and 827kg of cement produced per

capita in the Middle East in 2014 compared to 575kg of cement produced

per capita globally). Other countries, such as India, are set to increase

their domestic cement production capacities to fulfil their infrastructure

development needs, aligning with global levels by 2050. The global

average cement demand per capita is expected to level out at around

485kg over the same period.

Global cement demand intensity and population and cement

production intensity

Source: International Energy Agency, Cement Sustainability Initiative

Most cement production capacities is expected to be in China and other

developing countries such as India, Indonesia and Brazil. However,

according to the latest data published by IEA (June 2020), the direct CO2

intensity of cement production has increased by 0.5% per year during

2014-2018. That said, a 0.8% decline is required to get on track with the

carbon neutral target by 2030.

2010 2020 2030 2040 2050 2060

0

500

1,000

1,500

2,000

0

500

1,000

1,500

2,000

2,500

3,000

2014 2020 2025 2030 2035 2040 2045 2050

Non-urban population Urban population

World demand intensity INDIA - production intensity

MIDDLE EAST - production intensity CHINA - production intensity

Population (mn) Cement internsity (kg cement/capita)

Asia Insight SparX


As China accounts for 55% of cement production, the cement industry in

China would determine the overall progress of global greenhouse gas

emissions and carbon neutrality. According to the China government’s

original plan to reach the targets set in the 2030 Paris Agreement

Nationally Determined Contribution (NDC), it has explicitly set an

ambitious target to reduce the thermal energy intensity of clinker

production to 3.07 GJ/t of clinker on average by 2020, as part of the 13th

Five-Year Plan (2016-20). This represents 1% annual reduction in the

specific thermal energy demand of clinker from 2014. However, the

Chinese government had abruptly suspended approvals for subsidies on

solar projects in 2018 and issued new policies to reduce solar and wind

subsidies in 2019. The government has also lifted a two-year ban on new

coal-fired power plant construction.

However, by superseding the 2020 pledge and 2030 NDC commitment,

the China government has recently proposed to strengthen its 2030

climate target, peak emissions before 2030 and to meet carbon neutrality

by 2060. We believe the China government has demonstrated its concern

on this global issue and is taking the appropriate steps. THE new timeline

is realistic and marks an important milestone in the next decade for the

industry.

Possible initiatives to address transition risk

Before we attempt to address the transition and financing risks arising

from being a low-carbon economy, we have listed three major initiatives

for industry participants to think about.

A better way of making cement

▪ Carbon capture and storage (technology deployment)

▪ Fuel consumption (renewables)

▪ Demand management (lower clinker usage)

Carbon capture and storage technology (near zero-carbon solution)

Carbon capture technology could capture >90% of carbon produced

during the clinker manufacturing process, making this one of the most

efficient wats to reduce emissions. In more technical terms, about half

(50%) of the emissions from cement manufacturing is a result of heating

limestone. When a cement rotary kiln is heated to around 900°C,

limestone (calcium carbonate - CaCO3) starts to decompose into lime

(CaO), and releases carbon dioxide (CO2) as a waste product. This is

known as limestone calcination and this single chemical process accounts

for around 4% of the world’s total emissions.

A further 40% of cement-related emissions comes from burning fossil

fuels (coal, coke or natural gas) to generate the heat required to make

clinker in the rotary kiln. The remaining 10% of emissions relate to the

electricity used to grind and transport materials. Facilities using chemical

absorption could achieve closer to full capture rates. Meanwhile, carbon

capture technologies in the cement industry has yet to be commercially

available.

Asia Insight SparX


Among the leading global cement producers, HeidelbergCement leads in

terms of carbon capture, utilisation and sequestration (CCU/S).

LafarageHolcim is working on more than twenty CCU/S pilot projects

across 270 sites to be at the forefront of low-carbon construction. For

example, CO2 from Westküste100, LafargeHolcim Lägerdorf, Germany will

be transformed into a synthetic fuel that can be used at nearby airports.

Separately, Mexican cement giant, Cemex, has disclosed plans to work

with Carbon Clean to develop carbon-capture technology in an integrated

modular system of rotating packed beds which will cost just US$30 a ton

of CO2 captured by 2021.

We are now seeing China peers taking similar steps. Anhui-based Conch

Cement has successfully upgraded the effectiveness of carbon captured

to full rate (2018) from capturing 15% of emissions in 2014.

Taiwan Cement (TCC) has taken the lead to build its first CO2 capture test

line with the Hoping Plant, by using Calcium-Looping technology. This

involves capturing the emissions from a cement plant and then securing

the CO2 component underground. The appeal of carbon capture and

storage (CCS) is that it deals with emissions from the calcination of

limestone. Mineral carbonation is more practical and likely to be more

cost-effective than CCS. There are potential cost savings from the

electrification of cement production to reduce emissions by using low-

emissions technology. The Cement Sustainability Initiative found that by

2050, CCS could reduce the sector’s emissions by a further 20%,

contributing to overall reduction by about a third.

Major development of carbon capture technology in China

Company Method Effectiveness Comments

Anhui Conch Co-development

with Dalian

University

Commenced in Oct-18 in

Baimashan Plant,

30,000tons of food grade,

and 20,000tons of industrial

grade of CO2 with purity of

99.99%

-

CR Cement Details not available

CNBM Details not available

Taiwan Cement Calcium looping Carbon capture of 450,000

tons p.a. in 2025, to reach

economies of scale in 2030

Microalgae

sequestration

can produce

astaxanthin at

a lower cost

Asia Cement Details not available

Source: Company, DBS Bank (Hong Kong) Limited (“DBS HK”)

https://www.westkueste100.de/en

Asia Insight SparX


Fuel consumption

Along with the lower cost options available for energy inputs namely

biomass and alternative fuels (i.e. municipal and industrial waste),

consumption demand for traditional fossil fuels for cement production

would gradually drop. According to the 2018 Cement Industry GNR data,

the proportion of alternative fuels used is now 9.5x greater than in 1990.

Fossil fuel substitution, 1990-2018

Source: GNR – Global Cement and Concrete Association in Numbers

Beyong Zero Emissions’ (BZE) study shows that a transition to 100%

renewables would not only reduce carbon emissions, it is also less

hazardous to health, consumes less water than coal-fired power plants

and provides at least as many jobs as fossil-fuel enterprises. Alternative

fuels from wastes is another way to decarbonise at a lower cost. Overall,

we expect cement producers to switch to less carbon intensive biomass

and waste materials for use in cement kilns.

In China, cement plants are equipped with residual heat recovery systems

for energy conservation. All clinker production lines are required to use

advanced New Suspension Preheater (NSP) technology. This technology

can help to achieve decarbonisation. The heat generated from the clinker

production process is captured and recycled through the heat recovery

system to lower overall coal energy consumption. Using NSP is 7%-15%

more energy efficient than traditional suspension pre-heater systems.

Fuel diversity progress in China

Company Unit coal

consumed per

ton clinker

% of clean

energy

sources* waste

heat recovery

Comments

Anhui Conch 142.9kg/t clinker 55% 51m kWh clean

energy or 0.3% of

total energy

consumed

CR Cement 145.2kg/t clinker 32% -

CNBM 133.7kg/t

clinker**

28% -

Taiwan

Cement

NA 21% 10% of target

biomass by 2025

from 8% of

alternative fuel used

in 2019

Asia Cement 139.1kg/t clinker 23% -

*Include waste heat recovery generated

**Calculated based on the company’s coal energy used and clinker capacity

Source: Company, DBS HK

0%

20%

40%

60%

80%

100%

1990 2000 2010 2018

Fossil fuels Biomass Alternative fuels

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Demand management

Clinker is the main ingredient in cement and is directly responsible for

CO2 emissions due to the combustion of fuels and decomposition of

limestone. Therefore, lowering the clinker-to-cement ratio through use of

other blended materials would reduce pollutant emissions. In China, the

clinker-to-cement ratio increased at an average of 1.6% per year from

2014-2018, to 0.7 in 2018. Although China has one of the lowest ratios

globally, the ratio has risen from 0.57 to 0.6 during 2014-2017, then to

0.64 in 2018. The increase was due to two reasons: (1) excess capacity

reduces incentive for blending, and (2) China has been phasing out lower

grade (lower clinker ratio) cement products to address the excess

capacity issue.

Clinker content in cement for major producers in China

Company Clinker-cement

ratio*

Comments

Anhui Conch 0.70** Almost the lowest among peers

CR Cement 0.80 Below average

CNBM 0.85 -

Taiwan Cement 0.83 About average and it was lowered

from 0.85 during 2016 and 2108

Asia Cement 0.95 -

*Note: the lower the clinker content in cement the better

**Calculated based on the company’s disclosed capacity

Source: DBS HK

The difficulties are to find scalable and sustainable alternatives, for

example, Europe, lacking fly ash and slag. On the other hand, there are

more successful innovations such as geopolymer cement. Geopolymer

cement is a well-established class of cement that can be produced with

much lower greenhouse gas emissions (potentially zero) using two

materials: fly ash (waste ash produced in coal-fired power stations) and

ground granulated blast-furnace slag (GGBS, a by-product of iron blast-

furnaces).

There are various ways to obtain blended cement for example, mixing

clinker with substitute industrial waste products such as (1) fly ash, which

is produced when coal is burnt, (2) granulated blast-furnace slag (GBFS),

produced in iron and steel making, (3) calcined clay in combination with

limestone, using alternatives such as magnesium silicate clinker or timber.

For now, development of low-carbon products is still at a very early stage,

with Europe taking the lead. The most important advantage is that calcine

limestone is not required. In fact, making geopolymer cement does not

generate any carbon dioxide or other greenhouse gases. Therefore, in

one stroke, this removes more than 50% of cement-related emissions.

Asia Insight SparX


Progress in climate resilience and disclosure

“Climate resilience is the ability to anticipate, prepare for, and

respond to hazardous events, trends, or disturbances related to

climate. Improving climate resilience involves assessing how climate

change will create new, or alter current, climate-related risks, and

taking steps to better cope with these risks.” – Center for Climate and

Energy Solutions

In 2015, the World Business Council for Sustainable Development

(WBCSD) coordinated the Low Carbon Technology Partnerships Initiative

(LCTPi) with 18 cement companies, announcing a target to cut emissions

by 20-25% by 2030. Included in this list were UltraTech Cement, CRH,

Cemex, and Shree Cement, which are among the largest listed cement

companies in the world. However, most members have yet to set their

2030 targets. A quantifiable emission reduction target is essential in

guiding companies onto sustainable pathways.

LCPTi Members and Targets

2030 Target SBT Committed 2020-2025 Target Not Disclosed/ No

Target

HeidelbergCement

(acquired Italcementi

Group in 2016)

LafargeHolcim

Siam Cement

Cemex

Dalmia

Shree Cement

CRH

Argos

InterCement

UltraTech

SECIL

Votorantim

GCC

Titan

CNBM

CRCH

West China

Cement

Source: Decarbonising Cement: The Role of Institutional Investors (2019)

Metrics and disclosure of targets

Transition Pathway Initiative (TPI) is a robust approach in climate change

research and assesses companies on two dimensions: (1) carbon

performance and (2) management quality. According to TPI’s data, the

manufacture of one ton of cement released 0.70 tons of carbon dioxide

emissions for East Asia & Pacific region (China: 0.82) in 2019, down from

2017’s level of 0.76 (China: 0.86).

On carbon intensity (carbon performance), there are visible improvements

since 2018 and a number of cement companies are aligned with the Paris

Pledges (22% out of 22 companies) while the rest are either not aligned or

have made no disclosures. The results are consistently weak for China

producers (3 out of 5 attained Level 1 – awareness).

Overall, we believe it is important for cement producers to disclose their

emissions intensity according to the Cement Sustainability Initiative. The

highest industry standard had recommended to set science-based targets

(SBTs) based on a 2030 timeline. However, only a handful of companies –

Heidelberg Cement and IMERYS – have set targets.

On management quality, we expanded our study to 12 Chinese companies

located in Greater China region, versus TPI’s assessment on 5 Chinese

cement companies. See Appendix: Results of our assessment on

management quality.

Our findings: (1) it is important to nominate a board member or committee

with explicit responsibility for climate change, (2) lack of clear policy in place

for action on climate change, (3) A-share companies (Shanghai or Shenzhen

listings) are rated at the minimum Level 1 grade as their disclosure in

general does not meet the format as per Environmental Social Governance

Asia Insight SparX


/Climate report such as lacking emissions data disclosure and statement on

explicit steps to tackle climate issues etc, (4) 7 companies (58%) can be

upgraded to Level 3 and 4, considering their commitment on tackling

climate issues, potential improvement in data transparency, and

proactiveness of participating in international initiatives via partnerships. In view of those companies we have come across that are in the process

of formulating new ESG policies to comply with the national standard, we

believe there is good potential for these Chinese companies to receive a

better rating and drive an improvement in the sector.

Our assessment of management quality of major China cement

companies

*Note: the higher number of ticks represent the better management quality

Source: DBS HK

Regulations and investor expectations

Last but not least, regulators have an important role to drive changes to

address the climate change issue. These include (1) regulations to facilitate

technology uptake, (2) shift from prescriptive to performance-based design

standards within building codes, (3) tightening building regulations and

ambitions for low-carbon cities, (4) develop infrastructure for deployment of

carbon capture pipeline networks, (5) stimulus for renewable power

generation to ensure wider penetration of blended cements, and (6)

standardisation of alternative binding materials for cements. In all,

governments should be responsible for setting a level playing field for all

industry participants. Moreover, Climate Action 100+ was launched in late 2017 by investors around

the world to ensure that the world’s largest corporate greenhouse gas

emitters react to climate change issues. To date, more than 450 investors with

more than US$40trn in assets under management have joined the action,

clearly demonstrating a growing demand for more climate-related financial

information by investors. Regulators in Asia are also responding to requests

from investors and are increasing and tightening financial disclosure

requirements. Thus, we believe this should help investors to better assess

climate change risk. The Investor Decarbonization Initiative (IDI), coordinated by Share Action and

representing US$1.7trn of assets, calls on cement companies to set science-

based targets (SBTs). In June 2019, the Institutional Investors Group on

Climate Change (IIGCC) outlined investor expectations for net-zero emissions

targets in the cement sector, and to vote against climate change laggards.

Investors are encouraged not to participate in new bond or equity issuances

by climate change laggards, thus incentivising these companies to act. In the

meantime, stock exchanges including HKEx are determined to amend the

ESG Reporting Guide, requiring disclosure of significant climate-related issues.

0

2

4

6

8

10

12

14

16

Conch CRC CNBM Asia Cement Taiwan

Cement

# ticks

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Our studies on climate financial impact

Impact summaries:

▪ Opex concerns

▪ Carbon price and trade

Declining cost from using new carbon capture technologies

The 2018 IEA and Cement Sustainability Initiative (CSI) Technology

Roadmap estimates that 3% of CO2 emission reductions from now until

2050 will be achieved by thermal energy efficiency improvements, while

48% will be driven by deployment of carbon capture and storage (CCS)

technologies. Cement Sustainability Initiative (CSI) is a global effort by 24

major cement producers with operations in more than 100 countries in

the pursuit of sustainable development.

Leading companies have realised the importance to decarbonise and are

setting targets to satisfy society and investors alike. Having committed to

transition their portfolios to net zero emissions by 2050, the Church

Commissioners for England expect to see ambitious targets consistent

with the goals of the Paris Agreement across the industrial sectors when

making investment decisions.

In the meantime, the mass deployment of carbon capture technology is

challenging. Operating cost of carbon capture technology is inversely

correlated to the concentration of CO2 in exhaust gas streams. Also, the

costs of transport and storage for CO2 captured from cement plants is

significantly higher than steel and petrochemical plants. For example,

oxyfuel plant costs 63% higher to build and 42% higher to operate given

higher electricity demand consumed.

Globally, the industry had earlier conservatively projected operating cost

for adopting carbon capture technology to be US$100 per ton.

Considering the limited impact on end consumer prices, costs are likely to

be readily absorbed and passed through. For example, a US$500k house

would cost US$15k more than before or c.3% for the end consumer. But

the situation is different in China, as this additional opex as a percentage

of the total would represent a huge portion for most China producers. As

such, new research and development has brought down opex to

US$30/ton. On an optimistic scenario, assuming a cost benefit (from

development of new technology) of 5% a year as proposed by Climate

Technology Centre & Network, opex could further reduce to below

US$25/ton CO2 captured.

In short, we believe the declining cost of installment and operation

provides better incentives for Chinese companies to adopt a cleaner

method of production. We are hopeful that companies mindful of climate

change would become better amid the government’s push towards

decarbonisation. This would drive sectoral improvements ahead.

Carbon price and trade

In the European Union, the emissions trading scheme (EU ETS), is a key

tool for reducing greenhouse gas emissions, covering around 45% of the

EU’s emissions. The cement industry is deemed as a sector exposed to a

risk of carbon leakage by the European Commission. This means there is

a risk that businesses could transfer production to countries with less

stringent emissions regulation and export the finished products back into

the European Union13. Sectors facing carbon leakage are allocated a

higher share of CO2 allowances, and in the first three phases of the EU

ETS, cement companies were allocated an excess of CO2 allowances

compared to their emissions, allowing them to trade their allowances with

other industrial emitters. Phase 4 of the EU ETS begins in 2021.

The objective of this phase is to be more flexible in adjusting allowances

and align them better with actual production. This could remove a

Asia Insight SparX


potential revenue stream for companies that previously sold their excess

allowances, and introduce a cost if companies are unable to adjust their

emissions quickly enough. According to industry estimates, cement prices

would have to increase by 4-5% to compensate for the additional cost,

but it could still have negative EBITDA impact of 1-5% (based on 2020

financials) for European cement producers.

The size of the carbon market remains small. However, as demand grows,

we would expect prices to do the same. To illustrate, the price of an

allowance in the EU ETS is around US$27 per tCO2 e, while the High-Level

Commission on Carbon Prices has stated that current prices should be

US$40–80/tCO2 e worldwide in order to meet the Paris Agreement goals.

The inherent investment cost implies an explicit or implicit carbon price of

roughly US$100 per ton of CO2 (as benchmark opex cost in deploying

CCS).

A case study in Guangdong, China. Back in November 2011, the National

Development and Reform Commission determined that the first pilot

carbon emission trading should be launched in seven regions of Beijing,

Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen.

Guangdong officially launched carbon emissions trading on 19 December

2013. According to the Bulletin on the State of the Ecological Environment

in Guangdong Province (2019年广东省生态环境状况公报), Guangdong’s

carbon market had a cumulative transaction quota of 139 m tons, with a

total transaction value of RMB2,715 m, ranking this market the largest in

China.

Guangdong uses carbon trading quota auction revenue to establish a

"low-carbon industry development base." The fund uses a public-private

partnership (PPP) model to drive private capital with government

investment. We note that the innovation of carbon financial derivative

products, including carbon trading legal person account overdrafts and

carbon emission mortgage financing to assist small and medium-sized

enterprises, would help in solving financing issues relating to emissions

reduction.

The media has reported that Fujian, Hubei and Chongqing would follow

suit in promoting the development of a GREEN capital market. We believe

this method has advantage by combining clean in finance as solution for

the carbon reduction and climate issue. Considering the initiatives that

companies have adopted to go “GREEN”, we expect the ETS to provide a

platform for producers to net sell their quota. In distant future, we

visualise that the market is not only eligible to trade the emission quota,

but also the replacement capacity quota. That could provide a new source

of monetisation potential for efficient producer. This should provide a

strong support for carbon neutrality progress in the industry, in our view.

Asia Insight SparX


Our stock picks

Focus points:

▪ Priority in transition risk management is essential

▪ Our stock selection

▪ Anhui Conch and CR Cement are potential role models in climate

change risk management

By default, climate change is the defining issue arising from shifting

weather patterns. This has widespread impact ranging from threatening

food production, to rising sea levels increasing the risk of catastrophic

flooding at an unprecedented scale. We are convinced the operating

environment for cement companies is gradually changing due to rising

awareness on climate issues.

After reviewing the assessment criteria on management quality and

evaluation of financial risk, we identify potential industry leaders or role

models that should be able to successfully address the climate change

impact. This is based on the following criteria:

(1) Possess clear vision or stated targets in carbon reduction

progress, supported by sound business strategy to mitigate

transition risk;

(2) Transparent disclosure (to meet TPI Level 4) or management has

made dedicated efforts on disclosure improvements; and

(3) Responsiveness to regulators and stakeholders on policies and

market changes.

Research from the Institute of International Finance showed that ESG

equity indices outperformed the market since the end of 2015. These

provide strong evidence of a positive correlation between ESG and

company performance and share price. As a result, we like:

Anhui Conch Cement (914 HK, BUY, TP HK$60.0)

• Strong management and ability to raise data disclosure

transparency

• Possible shorter technology learning curve in emissions reduction

• Awareness in using alternative fuels and materials in cement

production

We downgrade China Resources Cement to HOLD from BUY, in our latest

China material sector outlook report issued on 2 March 2021, considering

the near term margin pressure. Despite so, we believe China Resources

Cement is one of the potential role models, because:

China Resources Cement (1313 HK, HOLD, TP HK$10.5)

• Committed to better climate-data disclosure

• Various initiatives to develop new production methods to adapt

to changes from transition to low-emissions economy

• One of the net sellers of carbon quota in the Guangdong market

Asia Insight SparX


STOCK PICKS

Asia Insight SparX


Anhui Conch (914 HK/600585 CH)

H - BUY Last Traded Price (15 Mar 2021): HK$51.95 (HSI : 28,834) Price Target 12-mth: HK$60.00 (15.5% upside)

A - HOLD Last Traded Price (15 Mar 2021): RMB53.85(CSI300 Index : 5,036) Price Target 12-mth: RMB55.00 (2.1% upside) Analyst

Duncan Chan+852 36684178, [email protected]

Forecasts and Valuation (H Shares)

FY Dec (RMBm) 2019A 2020F 2021F 2022F Turnover 157,030 165,045 170,844 173,932 EBITDA 50,313 51,306 54,414 55,713 Pre-tax Profit 44,596 44,806 47,585 48,604 Net Profit 33,630 33,788 34,899 35,646 Net Pft (Pre Ex) (core profit) 33,630 33,788 34,899 35,646 Net Profit Gth (Pre-ex) (%) 12.6 0.5 3.3 2.1 EPS (RMB) 6.35 6.38 6.59 6.73 EPS (HK$) 7.57 7.60 7.85 8.02 EPS Gth (%) 12.6 0.5 3.3 2.1 Diluted EPS (HK$) 7.57 7.60 7.85 8.02 DPS (HK$) 2.39 2.40 3.14 3.21 BV Per Share (HK$) 30.88 36.09 40.80 45.61 PE (X) 6.9 6.8 6.6 6.5 P/Cash Flow (X) 5.7 6.7 5.6 5.4 P/Free CF (X) 7.1 9.4 7.4 7.1 EV/EBITDA (X) 3.8 3.5 3.0 2.6 Net Div Yield (%) 4.6 4.6 6.0 6.2 P/Book Value (X) 1.7 1.4 1.3 1.1 Net Debt/Equity (X) CASH CASH CASH CASH ROAE(%) 26.9 22.7 20.4 18.6 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 6.56 6.65 6.57 Other Broker Recs: B:29 S:1 H:1

Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters

Click here to the Insights Direct

Strong management and technological innovations for low-carbon

development. As an inherent driving force behind sustainable

development, the company has actively explored innovative solutions

in energy conservation, emissions reduction, low-carbon development

and environmental protection as long-term development strategies. It

shares its experience in energy conservation and emissions reduction

with industry peers in global forums organised by the United Nations

and the World Cement Association. Awareness in using alternative resources. Conch took the lead in

promoting residual heat power generation technology in China. Also,

six subsidiaries have used more wind/ solar power in 2019. Moreover,

Conch use mineral powder, fly ash, slag, coal gangue and other

industrial waste to lower clinker consumption. Its clinker-cement ratio

become the lowest among peers. These initiatives reduced total coal

electricity consumption equivalent to reducing CO2 by 14.5m tons for

the year and lower overall CO2 emission concentration rate per unit of

clinker produced. Price Relative

75

95

115

135

155

175

195

215

235

22.4

27.4

32.4

37.4

42.4

47.4

52.4

57.4

62.4

Mar-17 Mar-18 Mar-19 Mar-20 Mar-21

Relative IndexHK$

Anhui Conch Cement (LHS) Relative HSI (RHS)

83

103

123

143

163

183

203

223

243

263

17.9

27.9

37.9

47.9

57.9

67.9


Relative IndexRMB

Anhui Conch Cement Co Ltd-A (LHS) Relative CSI300 Index (RHS)

https://www.dbs.com/insightsdirect/company/TR4295864310

Asia Insight SparX


Climate-related financial disclosure

Element Comments

Governance

• The Board and commitment

Responsible for forming ESG management framework and strategy in a top-down manner.

• Stakeholder engagement and actively obtains the opinions and expectations of stakeholders on social responsibility (ESG inclusive).

Strategy

• Technological improvement for desulphurisation and denitration

As end of 2019, the company completed technological improvements for wet desulphurisation for 32 clinker production lines and technological improvements for composite desulfurisation for 14 clinker production lines in 12 subsidiaries. Since then, the emission concentration of sulphur dioxide was controlled at below 50mg/m3. The nitrogen oxides (NOx) emission concentration stayed below 320mg/m3.

As at end 2019, technological improvements to reduce particulate matter emissions was completed for 135 sets of equipment. Average emissions concentration of particulate matter fell below 10mg/m3.

• Wuhu Conch project (completed in 2020) is a showcase project for ultra-clean emissions i.e. the emission concentration of NOx, sulphur oxides (SOx) and particulate matter can be kept below 100mg/m3, 50mg/m3 and 10mg/m3 respectively

• Green Factories. As end of 2019, a total of 17 subsidiaries were named as a national, provincial and municipal “Green Factory”.

• Carbon capture. Its Baimashan Cement Plant produced 28,400 tons of industrial grade and food grade carbon dioxide products.

• In 2019, it invested RMB580m in energy conservation and emission reduction, and saved 850m kWh of power and 152,800 tons of standard coal, equivalent to reducing 1,132,400 tons of carbon dioxide emissions.

• First user of pure low-temperature residual heat power generation technology in China. Fossil energy is saved by using renewable energy (residual heat power generation technology). In 2019, 8,627m kWh was generated by residual heat, saving 2.76m tons of standard coal as compared with similar scale of fire-generated electricity and reducing CO2 emissions by 7.36m tons.

• Alternative fuels. In 2019, Jining Conch used 308,000 kWh of wind power across the year; whereas Baimashan Cement Plant, Xuancheng Conch and Tongling Conch, purchased and used >26.32m kWh of solar power, equivalent to saving 8,423tons of standard coal, and reducing 22,500 tons of carbon dioxide emission. It plans to use 51m kWh of clean energy in 2020 and its first domestic pilot biomass fuel system in Zongyang Conch has been put into operation.

• Clinker substitutes use mineral powder, fly ash, slag, coal gangue and other industrial waste. In 2019, it consumed 60.57m tons of various waste residues. Cement quality was stable and power consumption of per-ton cement production declined 1.9kWh, consumption of clinker reduced by 8.0863m tons, equivalent to reducing 7.137m tons of carbon dioxide emissions.


Asia Insight SparX


Climate-related financial disclosure (con’t)

Element Comments

Risk management

• Risk management in climate-change

Headquarters carried out inspection and evaluated the risk factors in environmental management and the required rectifications.

As of end 2019, 77 subsidiaries had obtained the ISO 14001 Environmental Management System Certification.

Metrics and targets

• A clear target

For 2020, total emissions of sulphur dioxide (SO2) and NOx decline by 41%/29% from 2015 versus the 15% reduction required under the 13th Five-Year Plan. Emission concentrations of particulate matters, SO2 and NOx in all subsidiaries are kept below 15mg/m3, 100mg/m3 and 240mg/m3, respectively.

For 2025, all subsidiaries to obtain the Environmental Management System Certification, total emissions of NOx to decline by 50% from 2020, emission concentrations of particulate matters, SO2 and NOx in all subsidiaries to be kept below 10mg/m3, 50mg/m3 and 100mg/m3.

• For 2020, CO2 emissions per ton of clinker fell by 0.0045 tons from 2016, standard coal consumption for clinker production, comprehensive power consumption and power consumption of the cement production declined by 3.31%, 4.22% and 12.69% from 2015.

For 2025, CO2 emissions per ton of clinker to fall by 0.0031 tons from 2020, standard coal consumption for clinker production, comprehensive power consumption and power consumption of the cement production to decline 0.81%, 2.56% and 6.64% from 2020.


Asia Insight SparX


China Resources Cement (1313 HK)

HOLD Last Traded Price (15 Mar 2021): HK$8.92 (HSI : 28,834) Price Target 12-mth: HK$10.50 (18% upside) Analyst


Forecasts and Valuation

FY Dec (HK$m) 2019A 2020A 2021F 2022F Turnover 38,956 40,087 39,874 40,129 EBITDA 14,588 14,487 15,308 15,331 Pre-tax Profit 12,008 11,893 12,589 12,582 Net Profit 8,618 8,960 9,494 9,614 Net Pft (Pre Ex) (core profit) 8,618 8,960 9,494 9,614 Net Profit Gth (Pre-ex) (%) 8.1 4.0 6.0 1.3 EPS (HK$) 1.23 1.28 1.36 1.38 EPS Gth (%) 4.7 4.0 6.0 1.3 Diluted EPS (HK$) 1.23 1.28 1.36 1.38 DPS (HK$) 0.60 0.62 0.65 0.66 BV Per Share (HK$) 6.01 7.11 7.81 8.53 PE (X) 7.2 7.0 6.6 6.5 P/Cash Flow (X) 5.5 6.0 5.3 5.1 P/Free CF (X) 6.8 11.6 10.4 6.7 EV/EBITDA (X) 4.0 3.9 3.6 3.3 Net Div Yield (%) 6.7 6.9 7.3 7.4 P/Book Value (X) 1.5 1.3 1.1 1.0 Net Debt/Equity (X) CASH CASH CASH CASH ROAE(%) 21.6 19.6 18.2 16.8 Earnings Rev (%): Nil Nil Consensus EPS (HK$) 1.41 1.42 Other Broker Recs: B:19 S:1 H:2



Committed to carbon reduction and data disclosure. Among all listed

state-owned peers, CR Cement is a role model in the ESG area in the

China cement industry. CR Cement is committed to tackle this global

issue through multi-layer committees to oversee the issues at both

the board (CCRS committee) and unit level (EHS committee), chaired

by the Chief Executive Officer, by implementing various strategies and

developing new green products to achieve its carbon reduction

target. CR Cement’s Chairman was the ex- Co-Chairman of GCCA

(formerly CSI) in China. CR Cement’s promise is to adopt the highest

standard of disclosure to market investors, making this the highest

priority of the action plan for the next five years. One of the most efficient operating cement producers in China. CR

Cement is the largest cement producer in Southern region of China,

with a dominant market presence in Guangdong and Guangxi

provinces. According to the management, CR Cement’s 8 plants

located in Guangdong has participated and traded in Guangzhou

Tanpai Fangquan Exchange, as net seller of credit quota and should

receive monetary returns as a benefit. Price Relative

71

121

171

221

271

3.4

5.4

7.4

9.4

11.4

13.4


Relative IndexHK$

China Resources Cement (LHS) Relative HSI (RHS)


Asia Insight SparX



Element Comments

Governance

• Well-structured committees at both the board and unit level for climate issues. All committee members regularly attend ESG and

climate change related education and training

At board level: “Corporate Culture and Social Responsibility Steering Committee” has been established and the Chairman of the Board

and the Chief Executive Officer serve as the President and the Vice President of the committee respectively.

At unit level: “Three-tiered Management and Control” is implemented in Environment, Health and Safety (“EHS”) organisational

system at each unit level and the EHS Management Committee at headquarters is chaired by the Chief Executive Officer.

As climate change is one of the important KPIs for the company, the above committees established would help to ensure a timely

response to address issues in the future.

• CR Cement’s Chairman was the ex- Co-Chairman of Cement Sustainability Initiative (currently Global Cement and Concrete

Association) in China

• Net seller of carbon quota. 8 plants in Guangdong and 5 plants in Fujian had settled carbon quota.


Asia Insight SparX


Climate-related financial disclosure (Con’t)

Element Comments

Strategy

• Initiatives for minimising overall transition risk:

Business strategies (1) Green production. 100% of the company’s cement production plants have obtained permits for pollutant

emissions, (2) 100% of cement and clinker production plants are equipped with pure low-temperature residual heat recovery

generation systems, denitration systems and bag filters, (3) As of end-2019, the company completed the construction of 3 sets of

wet-process desulphurisation systems and 11 sets of composite desulphurisation systems, and (4) Certain cement production

plants located in Guangxi, and Yunnan are included as green factories as a role model in the register of national-level Green

Manufacturing.

• Other adaptation and mitigation activities

(1) Low carbon products. A 10% reduction in CO2 via self-researched combustion process (carbon capture) vs traditional

production, which has passed the low-carbon product certification. New products introduced such as aggregate and

prefabricated construction material.

(2) Decentralised energy generation. About 32% of the company’s electricity consumption was generated from residual heat,

equivalent to reducing 704,300 tons of CO2 emissions.

(3) Mode of distribution and transportation. Reduced cement sold in bags, thus reducing demand for product packaging.

(4) Waste disposal co-processing – includes existing 8 projects for solid waste, urban sludge and hazardous industrial waste.

• Undertake climate scenario planning based on change of 2 degrees in terms of cement market consumption fluctuation, extreme

weather strategies, entering new market opportunities, etc

• Financial impact. The accumulated investment in technological upgrade for energy saving and emission reduction and

environmental protection were RMB646 m and RMB1,511 m during 2017-2019. That is not material relative to the budgeted

capex of c.RMB2bn per annum, and overall balance sheet was in a net cash position.


Asia Insight SparX


Climate-related financial disclosure (Con’t)

Element Comments

Risk management

• Prudent risk management practises in climate-related risk

A real-time platform has been established at headquarters to monitor the emissions of environmental pollutants from all

production lines, with timely reminders to verify abnormal data sent through the platform.

• Scrutiny of real-time pollutant emissions data of all production lines in order to improve the standards of clean production.

• Manageable market risk, related to change in customer behaviour and raw material costs, via low-carbon products.

• Reputation risk. Reported and investigated a total of 4,600 counterfeit “Runfeng Cement” woven bags in Shenzhen as of 9M2019.

Metrics and targets

• Advocate for highest standard of emission data disclosure

CR Cement makes disclosures as per guidelines from the State Environmental Protection Agency and China Cement Association.

We highlight that: (1) Scope 3 data is lacking and (2) without any specific target for carbon intensity reduction plan. However,

management emphasis that more related policies to increase transparency would come out soon, to satisfy the strict regulatory

requirements.

• Carbon intensity at the low-end of its Chinese listed cement peers

According to CR Cement’s ESG report, the company’s emission intensity of greenhouse gases improved to 0.8497 in 2019 from

0.8615 in 2016. However, the data provides little insight compared to western peers as the calculation method is different in

China.

• Seeking external advice on emissions data

For CR Cement’s Scope 1 and Scope 2 data, management has plans to obtain external assurance on the emission data to be

published.


Asia Insight SparX


China National Building Material (3323 HK)

BUY Last Traded Price (15 Mar 2021): HK$11.16 (HSI : 28,834) Price Target 12-mth: HK$14.00 (25% upside) Analyst


Forecasts and Valuation

FY Dec (RMBm) 2019A 2020F 2021F 2022F Turnover 253,403 252,855 255,976 259,348 EBITDA 50,338 58,269 61,448 61,840 Pre-tax Profit 27,448 35,159 38,175 38,706 Net Profit 10,974 13,116 15,379 17,418 Net Pft (Pre Ex) (core profit) 10,974 13,116 15,379 17,418 Net Profit Gth (Pre-ex) (%) 38.4 19.5 17.3 13.3 EPS (RMB) 1.30 1.55 1.82 2.06 EPS (HK$) 1.55 1.85 2.17 2.46 EPS Gth (%) 38.4 19.5 17.3 13.3 Diluted EPS (HK$) 1.55 1.85 2.17 2.46 DPS (HK$) 0.42 0.50 0.59 0.66 BV Per Share (HK$) 11.40 12.76 14.35 16.15 PE (X) 7.2 6.0 5.1 4.5 P/Cash Flow (X) 1.2 2.4 2.0 1.8 P/Free CF (X) 2.1 28.1 4.0 3.3 EV/EBITDA (X) 6.1 5.5 5.1 4.9 Net Div Yield (%) 3.7 4.5 5.2 5.9 P/Book Value (X) 1.0 0.9 0.8 0.7 Net Debt/Equity (X) 1.0 0.9 0.7 0.6 ROAE(%) 14.4 15.4 16.0 16.2 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 1.60 1.88 1.89 Other Broker Recs: B:24 S:0 H:1



Initiative to address the issue and facilitate green and low carbon

development. The company is vigorously promoting low-temperature

waste heat recovery for power generation in cement rotary kilns. In

2019, the waste heat recovery system for power generation of its

subsidiaries in the cement business generated 9.403b kWh of

electricity, led to a consumption reduction of 1.1557m tons of

standard coal, emission reduction of 3.0279m tons of carbon dioxide,

and generated nearly RMB3.914 bn of economic benefits.

Rising awareness of sustainable development concept. The group

undertook restructuring to unlock synergies across its various

business segments. Subsidiaries namely Sinoma Cement and

Southwest Cement saw substantial emission reductions over the past

year, thanks to management’s dedicated efforts in pursing sustainable

growth as a top priority.

Price Relative

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141

161

181

201

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241

3.8

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9.8

11.8

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Relative IndexHK$

China National Building Material (LHS) Relative HSI (RHS)


Asia Insight SparX



Element Comments

Governance

• The Board is the highest decision-making body for ESG management

• In 2019, increased disclosure made on Environmental, Safety and Health Management System. This system has helped to increase

efficiency and lowered risks for sustainable development of business.

• Communication with various stakeholders on a regular basis

Strategy

• Waste heat power

In 2019, Sinoma Cement generated a total of 659.77m kWh of electricity by waste heat power, equivalent to saving 81,085 tons of

standard coal, reducing carbon dioxide emissions by 657,795 tons.

• Upgrading eco technics

For example, Zhongfu Xigang has carried out lay-up of FRP ships from hand lay-up to vacuum membrane PFRP resin compression

technology. Jiangxi Porcelain saves 150kWh electricity per month through the transformation of old motors.

• Green product

Adjustments made to structure of basic building material products and used industrial waste resources as raw materials to

produce building materials.

• Supply chain management

It implemented green procurement strategy and gives priority to environmentally friendly products those that have low carbon

emissions during their production process. Also, clean energy is given primary consideration.

Risk management

• Daily risk management as the first line of defence to establish a sound business process-oriented management system

• Continuous risk monitoring and control, as the second line of defence in risk management. Integrates different information

disclosure targets to improve information flow to the Board

• Independent internal review as industry practice

Metrics and targets

• Better disclosure

In 2019, greenhouse gas emissions +6.8% and intensity of greenhouse gas emissions -7.7%. Also, data were provided for NOx,

SOx, industrial particulate matter -6.7%/ -19.9%/ +19.7% for the period.

• Specific metrics used

Total energy consumption and intensity of total energy consumption were +4.9% and -9.4%, respectively.

• The company did not provide specific target or timeframe on the emission reduction.


Asia Insight SparX


Appendix: Results of our assessment on management quality

Source: TPI, DBS HK

Anhui

Conch

China

Resources

CNBM West

Cement

Asia

Cement

Taiwan

Cement

T ianrui

Cement

Shanshui

Cement

BBMG Huaxin

Cement

J idong

Cement

T ianshan

Cement

Level 01 Does the company acknowledge climate change as

a significant issue for the business?

√ √ √ √ √ √ √ √ √ √ √ √

2 Does the company recognise climate change as a

relevant risk and/or opportunity for the business?

X X X X √ X X X X X X X

3 Does the company have a policy (or equivalent)

commitment to action on climate change?

√ √ √ √ √ √ √ √ √ √ √ √

4 Has the company set greenhouse gas emission

reduction targets?

X X X X √ √ √ X X X X X

5 Has the company published information on its

operational (Scope 1 and 2) greenhouse gas

emissions?

X X X X √ √ √ X X X X X

6 Has the company nominated a board member or

board committee with explicit responsibility for

oversight of the climate change policy?

X X X X √ √ X X X X X X

7 Has the company set quantitative targets for

reducing its greenhouse gas emissions?

√ X X X √ √ √ X X X X X

8 Does the company report on Scope 3 emissions? X X X X √ √ X X X X X X

9 Has the company had its operational (Scope 1

and/or 2) greenhouse gas emissions data verified?

X X X X √ √ X X X X X X

10 Does the company support domestic and

international efforts to mitigate climate change?

X √ √ √ √ X X X X X X X

11 Does the company disclose its membership and

involvement in trade associations engaged in

climate issues?


12 Does the company have a process to manage

climate-related risks?


13 Does the company disclose materially important

Scope 3 emissions?

X X X X X X X X X X X X

Level 1

Level 2

Level 3

Asia Insight SparX


Appendix: Results of our assessment on management quality (continued)

Source: TPI, DBS HK

Anhui

Conch

China

Resources

CNBM West

Cement

Asia

Cement

Taiwan

Cement

T ianrui

Cement

Shanshui

Cement

BBMG Huaxin

Cement

J idong

Cement

T ianshan

Cement

14 Has the company set long-term quantitative

targets for reducing its greenhouse gas emissions?

X X X X X √ X X X X X X

15 Does the company's remuneration for senior

executives incorporate climate change

performance?


16 Does the company incorporate climate change risks

and opportunities in their strategy?


17 Does the company undertake climate scenario

planning?


18 Does the company disclose an internal price of

carbon?


19 Does the company ensure consistency between its

climate change policy and the positions taken by

trade associations of which it is a member?


Level 4

Asia Insight SparX


DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 16 Mar 2021 10:29:38 (HKT)

Dissemination Date: 16 Mar 2021 15:40:29 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS

Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or

duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its

respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any

of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do

not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This

research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular

needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain

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buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document.

The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking

services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events

will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not

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obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research

publication relating to any issuer.

Asia Insight SparX


The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to

significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based

will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE

RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of

securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

Asia Insight SparX


ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report

accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views

expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of

the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of

any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily

responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible

for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information

held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS

Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Anhui Conch Cement Co Ltd (914 HK), China Resources Cement Holdings Ltd

(1313 HK) and China National Building Material Co Ltd (3323 HK) recommended in this report as of 12 Mar 2021.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other

investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect

a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities /

instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous

investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or

adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation

arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective

investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Wong Ming Tek, Executive Director, ADBSR

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SINGAPORE

DBS Bank Ltd

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Company Regn. No. 196800306E

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Contact: Chanpen Sirithanarattanakul

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Bangkok Thailand 10330

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Securities and Exchange Commission, Thailand

refer to important disclosures at the end of this report

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