Yum Cha 飲 茶 November 30, 2015

Source: Bloomberg

INDICES Closing DoD%

Hang Seng Index 22,068.3 (1.9)

HSCEI 9,855.7 (2.5)

Shanghai COMP 3,436.3 (5.5)

Shenzhen COMP 2,184.1 (6.1)

Gold 1,057.6 0.0

BDIY 581.0 3.4

Crude Oil, WTI(US$/BBL) 41.9 0.3

Crude Oil, BRENT(US$/BBL) 44.8 (0.0)

HIBOR, 3-M 0.4 (0.7)

SHIBOR, 3-M 3.1 -

RMB/USD 6.4 0.1

RESEARCH NOTES

TALKING POINT - SDR WEIGHTING TO BE THE FOCUS

International Monetary Fund (IMF) will hold a board meeting today and it is widely expected that

RMB would be included in the basket of Special Drawing Rights (SDR). As we discussed two

weeks ago, the creation of SDR is to support the Bretton Woods fixed exchange rate system.

Following the collapse of this system, it lessened the need for the SDR. As of September 10,

2015, 204.1bn SDRs were created and allocated to members (equivalent to about US$280bn).

If we assume 15% will flow to RMB, it only represents a flow of US$42bn, a tiny amount in the

FX market. Therefore the short-term benefits are limited. However, it is considered by many

mainland investors as a milestone of RMB internationalization. Currently most people expect

RMB will have a weighting of 10%-15% in the SDR basket. If the actual weighting is closer to

the low-end of expectation or below 10%, it will be perceived as a negative because it suggests

IMF still thinks RMB is not a currency that can be used freely. It may exert depreciation pressure

on RMB and mainland aviation companies will be the major victims, as most of their debts are

dominated in foreign currencies. Analyst: Wong Chi-man, CFA

DATA RELEASES DUE THIS WEEK

Nov 30 Manufacturing PMI

Nov 30 Non-manufacturing PMI

Nov 30 Caixin China PMI Mfg

Nov 30 Caixin China PMI Composite

Nov 30 Caixin China PMI Services

YOFC [6869.HK; HK$8.35; BUY] - China Mobile’s [941.HK] acquisition of Tie Tong from the

parent may indicate that China Mobile will be more aggressive in fixed line and broadband

business which is positive to local optical fiber supply chain including Yangtze Optical Fibre &

Cable (YOFC). YOFC’s Q3 results were distorted by volatile foreign exchange rate movement.

Due to stabilization of RMB exchange rate, the level of exchange loss has been reduced signifi-

cantly in Q4 2015. We adjusted downward our earnings by 7.7% for 2015 after factoring in

exchange loss. Strong operating performance and increasing market attention are share price

catalysts. Maintain BUY with a new target price of HK$10.66 based on 11.0x 2015E PER.

ANHUI CONCH [0914.HK; HK$21.00; UPGRADE TO BUY] - We believe Anhui Conch has

secured a good deal by injecting four cement plants into West China Cement [2233.HK; WCC]

at an EV/tonne of about RMB860, nearly 2x of replacement cost. WCC will become a 51.57%-

owned subsidiary of Anhui Conch as the consideration will be settled by shares. The latter’s

cement production capacity will increase by 9.8% after deal completion, a milestone of market

consolidation. Although immediate earnings contribution will be limited, their combined market

share of >40% in Shaanxi post-deal should help improve the profitability. We maintain our tar-

get price of HK$27.1, based on 1.63x 2016E PBR. Upgrade from HOLD to BUY.

CHINA CEMENT WEEKLY - Average cement price (nationwide) climbed 0.13% to RMB253.08

tonne last week. Cement prices in part of Chongqing, Guangxi and Guizhou were up RMB10-

20/tonne. Average inventory level (nation-wide) dropped to 75.30% last week.

YOFC [6869.HK]

China Mobile’s [941.HK] acquisition of Tie Tong from parent may indicate that China Mo-

bile will be more aggressive in fixed line and broadband business which is positive to local

optical fiber supply chain including Yangtze Optical Fibre & Cable Joint Stock Limited

Company (YOFC). YOFC’s 3Q results were distorted by volatile foreign exchange rate

movement. Due to stabilization of RMB exchange rate, the level of exchange loss has

been reduced significantly in 4Q 2015. YOFC is one of the beneficiaries of 4G roll out and

continued investment in optical fiber based fixed line network in China. YOFC’s capacity

expansion is on track and margin is likely to improve given increasing in-house produc-

tion. YOFC will benefit from import substitution for fibre cables from the US, Japan and

Europe in the long term. We adjusted our earnings downward by 7.7% for 2015 after fac-

toring in exchange loss. Strong operating performance and increasing market attention

are share price catalysts. Maintain BUY with a new target price of HK$10.66 based on

11.0x 2015E PER. The target price adjustment is due to downward earning adjustment.

Beneficiary of China Mobile’s investment in wireline business. On 27 Nov 2015,

China Mobile announced that the company would buy Tie Tong from parent for a consideration of RMB32.9bn. Tie Tong provides the fixed line and broadband ser-vices (both residential and commercial). Tie Tong now has 18.3m fixed-line subscrib-ers and 12.0m broadband subscribers and both are much smaller than the subscriber base of its rivals. Acquisition of Tie Tong may indicate that China Mobile will be more aggressive in fixed line and broadband business to narrow the gap between Tie Tong and its two rivals. This is positive to the local optical fiber supply chain including YOFC.

Outlook for the local optical fiber supply will remain positive in 2016 given govern-

ment policy of enhancing broad band coverage and lower board band tariff. Due to 4G roll out and continued investment in optical fiber based fixed line network in Chi-na, demand for optical fibre related products is expected to remain strong in 2015-2017. YOFC’s management believes that the industry will grow at a CAGR of over 10% over the next 2-3 years and the company is one of the major beneficiaries. Ac-cording to management, the average selling of preform was up by 8-10% after the anti-dumping ruling after ministry of Finance earlier this year.

3Q results were distorted. YOFC’s 3Q results were distorted by foreign exchange

losses as 90% of the company’s borrowings was denominated in foreign currencies mainly USD and Euro. According to management, about 50% of exchange losses booked in 3Q has been recovered due to stabilization of foreign exchange market. Management is talking measures such as increasing RMB loan portion and issuing RMB to minimize exchange rate movement impact.

Realignment of interests. The Employee Stock Ownership Scheme has been ap-

proved by CSRC which, in our view, is positive as management has incentives to improve operating efficiency of the company.

Mark Po, CFA — Senior Analyst

(852) 3698-6318

markpo@chinastock.com.hk

Wong Chi Man, CFA —Head of Research

(852) 3698-6317

cmwong@chinastock.com.hk

TMT Sector

Hardware

Outlooks remains positive. Maintain BUY

BUY

Close: HK$8.35 (Nov 27, 2015)

TP: HK$10.66 (+27.7%)

Share Price Performance

Market Cap US$689m

Shares Outstanding 639.5m

Auditor KPMG

Free Float 37.3%

52W range HK$6.28-11.88

3M average daily T/O US$1.2m

Major Shareholding Draka (28.1%)

China Huaxin

November 30, 2015

Key Financials

(in RMBm)2013 2014 2015E 2016E 2017E

Revenue 4,825.9 5,676.8 5,979.8 6,386.0 6,818.3

Change (YoY %) 1.0 17.6 5.3 6.8 6.8

Gross Profit 1,017.8 1,087.6 1,217.1 1,382.8 1,560.4

Gross Margin % 21.1 19.2 20.4 21.7 22.9

Net Profit 415.0 466.3 525.1 677.6 811.6

Net Margin % 8.6 8.2 8.8 10.6 11.9

EPS (Basic) 0.87 0.95 0.82 1.06 1.27

Change (YoY %) 13.8 10.2 (13.9) 29.0 19.8

DPS $0.000 $0.000 $0.123 $0.212 $0.254

ROE (%) 25.5 21.6 17.1 18.6 19.3

Dividend Yield (%) - - 1.74 2.99 3.59

PER (x) 8.2 7.4 8.6 6.7 5.6

PBR (x) 2.2 1.6 1.4 1.1 1.0

FCF Yield (%) 11.09% 5.69% 2.51% 2.75% 11.32%

Capex (m) (66.2) (36.3) (500.0) (400.0) (400.0)

Free cash flow per share 0.9 0.5 0.2 0.2 0.9

Net Gearing (%) 47.4 16.8 15.2 14.8 10.3

0

50

100

150

0

5

10

15

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

Figure 1: Key assumptions for YOFC

Sources: Company, CGIHK Research

Source: Company, CGIHK Research

2011 2012 2013 2014 2015F 2016F 2017F

Turnover (RMBm)

Optical fibre preforms and fibres 2,343.1 2,550.1 2,722.7 3,229.7 3,677.9 3,901.4 4,143.3

Optical fibre cables 1,788.1 2,070.3 1,817.6 1,989.4 1,971.9 2,025.7 2,061.4

Other products and services 43.9 157.4 285.6 457.7 330.0 459.0 613.7

Total 4,175.0 4,777.8 4,825.9 5,676.8 5,979.8 6,386.0 6,818.3

YoY Change (%)

Optical fibre preforms and fibres 8.8 6.8 18.6 13.9 6.1 6.2

Optical fibre cables 15.8 (12.2) 9.5 (0.9) 2.7 1.8

Other products and services 60.3 (27.9) 39.1 33.7

Total 14.4 1.0 17.6 5.3 6.8 6.8

Gross margin (%) 17.8 18.5 21.1 19.2 20.4 21.7 22.9

Optical fibre preforms and fibres 22.7 25.6 27.3 25.3 25.8 26.6 27.6

Optical fibre cables 11.4 9.4 11.7 9.1 8.5 9.1 9.1

Other products and services 10.9 22.2 21.4 19.4 30.9 34.9 37.6

Net margin (%) 8.2 7.6 8.6 8.2 8.8 10.6 11.9

ASP

Optical fibre preforms (RMB/tonne) 1,102.0 1,072.0 1,012.0 931.8 931.8 978.4 1,027.3

Optical fibres (RMB/fkm) 66.7 65.2 59.0 55.0 57.7 55.0 52.0

Optical fibre cables (RMB/fkm) 133.5 119.7 113.8 112.3 106.0 105.0 104.0

YoY Change (%)

ASP

Optical fibre preforms (2.7) (5.6) (7.9) 0 5.0 5.0

Optical fibres (2.3) (9.5) (6.7) 5.0 (4.8) (5.5)

Optical fibre cables (10.3) (5.0) (1.3) (5.6) (0.9) (1.0)

Volume

Optical fibre preforms (tonne) 624.0 683.0 964.0 1,289.6 1,547.5 1,702.2 1,872.5

Optical fibres (fkm) 24,816.0 27,900.0 29,628.0 36,874.0 38,717.7 40,653.6 42,686.3

Optical fibre cables (fkm) 13,395.0 17,292.0 15,975.0 17,717.0 18,603.0 19,292.0 19,821.0

YoY Change (%)

Volume

Optical fibre preforms 9.5 41.1 33.8 20.0 10.0 10.0

Optical fibres 12.4 6.2 24.5 5.0 5.0 5.0

Optical fibre cables 29.1 (7.6) 10.9 5.0 3.7 2.7

Cost (HKDm)

S,G&A (467.8) (528.1) (548.6) (565.4) (608.6) (649.9) (680.3)

Financial Expenses (68.0) (78.0) (81.3) (99.2) (98.4) (102.3) (106.5)

YoY Change (%)

S,G&A 12.9 3.9 3.1 7.6 6.8 4.7

Financial Expenses 14.8 4.2 22.1 (0.9) 4.0 4.1

CAPEX (RMBm) n.a. n.a. 66.2 36.3 500.0 400.0 400.0

Net Gearing (%) 51.6 43.0 47.4 16.8 15.2 14.8 10.3

Figure 2: Earnings projection

Sources: Company, CGIHK Research

Income Statement (RMBm) FY2013 FY2014 FY2015F FY2016F FY2017F Cash Flow Statement (RMBm) FY2013 FY2014 FY2015F FY2016F FY2017F

Revenue 4,826 5,677 5,980 6,386 6,818 Net Income 490 554 642 768 917

Growth yoy% 1.0% 17.6% 5.3% 6.8% 6.8% Depreciation & Amort. 110 114 147 174 200

Gross Profit 1,018 1,088 1,217 1,383 1,560 Change in Working Capital (110) (409) (161) (401) (139)

Growth yoy% 15.4% 6.9% 11.9% 13.6% 12.8% Cash from Ops. 491 258 628 540 978

Selling General & Admin Exp. (549) (565) (609) (650) (680) Capital Expenditure (66) (36) (500) (400) (400)

Others Operating Expenses/Items 21 32 33 35 37 Sale of Property, Plant, and Equipment - - - - -

Operating Income 490 554 642 768 917 Change in Investing Acitivities (126) (290) 237 (4) (168)

Growth yoy% n.a. 12.9% 15.9% 19.6% 19.4% Cash from Investing (192) (326) (263) (404) (568)

Interest Expense (81.3) (99.2) (98.4) (102.3) (106.5) Net increase in bank borrow ings 614 886 (22) 98 104

Interest and Invest. Income 42.5 52.0 50.6 51.1 57.1

Income/(Loss) from Affiliates 76.6 18.6 28.2 57.3 61.4 Issuance of Common Stock 0 892 0 0 0

Other Non-Operating Inc. (Exp.) 0 0 0 (50.0) 0 Common Dividends Paid (163) (574) 0 (79) (136)

Impairment of Goodw ill - - - - - Special Dividend Paid - - - - -

Gain (Loss) On Sale Of Invest. - - - - - Other Financing Activities (99) (105) (110) (134) (149)

Gain (Loss) On Sale Of Assets - - - - - Cash from Financing 353 1,099 (132) (114) (180)

Income Tax Expense (55) (71) (76) (100) (121)

Minority Int. in Earnings 0 2 0 0 0 Net Change in Cash 652 1,031 232 22 230

Net Income 473 457 546 674 807

Growth yoy% 13.8% 12.4% 12.6% 29.0% 19.8%

Balance Sheet (RMBm) FY2013 FY2014 FY2015F FY2016F FY2017F Ratios FY2013 FY2014 FY2015F FY2016F FY2017F

ASSETS Profitability

Cash And Equivalents 906 2,011 1,955 1,976 2,206 Return on Assets % 9.2% 8.0% 7.6% 9.0% 9.8%

Receivables 1,665 1,898 2,086 2,517 2,687 Return on Capital % 16.1% 12.8% 10.2% 11.7% 12.5%

Inventory 721 697 735 785 838 Return on Equity % 25.5% 21.6% 17.1% 18.6% 19.3%

Other Current Assets 1 6 0 0 0

Total Current Assets 3,294 4,612 4,775 5,277 5,731 Margin Analysis

Net Property, Plant & Equipment 820 783 1,136 1,362 1,562 Gross Margin % 21.1% 19.2% 20.4% 21.7% 22.9%

Long-term Investments - - - - - SG&A Margin % 11.4% 10.0% 10.2% 10.2% 10.0%

Other Intangibles - - - - - EBIT Margin % 11.0% 10.7% 11.6% 12.8% 14.3%

Deferred Tax Assets, LT - - - - - EBITDA Margin % 13.4% 12.7% 14.1% 15.6% 17.2%

Other Long-Term Assets 894 1,197 1,251 1,308 1,368 Net Income Margin % 8.6% 8.2% 8.8% 10.6% 11.9%

Goodw ill - - - - -

Accounts Receivable Long-Term - - - - - Asset Turnover

Total Long Term Assets 1,713 1,979 2,387 2,670 2,930 Total Asset Turnover 1.0x 0.9x 0.8x 0.8x 0.8x

Total Assets 5,008 6,591 7,162 7,948 8,661 Fixed Asset Turnover 2.8x 2.9x 2.5x 2.4x 2.3x

Accounts Receivable Turnover 3.0x 3.2x 3.0x 2.8x 2.6x

LIABILITIES & EQUITY Inventory Turnover 6.7x 8.1x 8.1x 8.1x 8.1x

Accounts Payable 1,792 1,112 1,171 1,251 1,335

Accrued Exp. - - - - - Liquidity

Short-term Borrow ings 808 1,465 1,443 1,541 1,646 Current Ratio 1.3x 1.8x 1.8x 1.9x 1.9x

Curr. Port. of LT Debt - - - - - Quick Ratio 0.9x 1.5x 1.5x 1.5x 1.6x

Curr. Income Taxes Payable - - - - - Avg. Days Sales Out. 126.0 122.0 127.3 143.8 143.8

Unearned Revenue, Current - - - - - Avg. Days Inventory Out. 54.6 44.8 44.8 44.8 44.8

Other Current Liabilities 0 7 8 9 10 Avg. Days Payable Out. 140.2 115.5 87.5 88.3 89.8

Total Current Liabilities 2,600 2,584 2,623 2,801 2,991 Avg. Cash Conversion Cycle 59.6 106.0 112.2 129.6 130.5

Long-Term Debt 814 1,019 1,019 1,019 1,019 Net Debt to Equity 47% 17% 15% 15% 10%

Def. Tax Liability, Non-Curr. 84 76 84 93 102

Other Non-Current Liabilities 0 0 0 0 0 Growth Over Prior Year

Total Liabilities 3,498 3,680 3,726 3,912 4,112 Total Revenue 1.0% 17.6% 5.3% 6.8% 6.8%

Common Stock 480 639 639 639 639 Net Income 13.8% 12.4% 12.6% 29.0% 19.8%

Additional Paid In Capital - - - - - Payout Ratio % 0.0% 0.0% 15.0% 20.0% 20.0%

Retained Earnings 1,030 2,174 2,699 3,298 3,812

Treasury Stock

Comprehensive Inc. and Other - - - - -

Minority Interest 0 97.7 97.7 97.7 97.7

Total Equity 1,510 2,911 3,437 4,035 4,549

Total Liabilities And Equity 5,008 6,591 7,162 7,948 8,661

Figure 3: Peer Comparison

Sources: Bloomberg, Company, CGIHK Research estimates for covered stocks

Ticker Company

Price Market Cap 2015F 2016F 2017F 2015F 2016F 2017F 2014 2015F 2014 2015F 2014 2015F 2014 2015F

Lcy US$m x x x x x x x x % % % % % %

6869 HK YOFC 8.35 689 7.9 6.6 5.0 6.9 5.7 4.5 1.6 1.6 21.6 20.7 8.0 8.1 2.4 3.0

2342 HK Comba Telecom Systems 1.48 388 8.9 7.5 6.4 5.6 4.9 4.5 0.8 0.7 4.1 8.9 1.8 2.8 1.6 2.8

552 HK China Communications Service 3.03 2,708 7.1 6.6 6.1 3.7 3.5 3.1 0.7 0.7 9.6 10.2 4.1 4.7 3.7 4.4

763 HK ZTE Corp-H 17.58 10,976 16.2 14.4 12.4 13.3 11.8 11.3 1.7 1.9 11.1 13.0 3.4 2.7 n.a. 1.6

6168 HK China U-Ton Holdings Ltd 1.20 272 18.3 14.1 11.5 n.a. n.a. n.a. 3.9 2.7 15.9 15.8 13.0 8.4 0.0 0.8

3777 HK China Fiber Optic Netw ork Sy 0.83 230 2.8 2.6 2.2 1.7 1.5 1.3 0.5 0.4 17.1 15.6 9.0 10.3 0.0 5.8

877 HK O-Net Communications Group 2.21 209 18.4 12.3 9.2 n.a. n.a. n.a. 1.2 n.a. 3.2 5.9 3.8 n.a. 0.0 n.a.

1300 HK Trigiant Group Ltd 1.57 317 4.8 4.4 5.2 6.2 5.7 5.3 0.8 0.7 21.3 14.8 9.4 9.9 8.8 7.9

941 HK China Mobile Ltd 88.80 234,595 13.0 12.3 11.4 4.2 3.9 3.6 1.7 1.6 13.3 12.9 8.4 8.5 3.1 3.3

762 HK China Unicom Hong Kong Ltd 9.67 29,878 15.1 15.5 13.2 3.2 3.1 2.9 0.8 0.8 5.4 5.4 1.8 2.6 2.5 2.3

728 HK China Telecom Corp Ltd-H 3.80 39,681 13.2 12.1 10.7 3.3 3.1 2.9 0.9 0.8 6.2 6.5 3.1 3.8 2.4 2.6

1883 HK Citic Telecom International 3.07 1,339 13.6 13.6 12.6 8.4 8.1 7.8 1.5 1.5 11.4 11.3 4.4 4.8 3.7 3.8

Average 11.6 10.2 8.8 5.7 5.1 4.7 1.3 1.2 11.7 11.7 5.8 6.0 2.6 3.5

000063 CH Zte Corp-A 17.58 10,975 19.8 16.7 14.6 11.8 10.4 9.7 2.7 2.4 11.1 12.9 3.0 3.5 0.8 1.2

600804 CH Dr Peng Telcom & Media Gr-A 23.38 5,119 42.1 31.6 23.7 11.5 9.5 8.2 6.0 5.9 11.6 14.1 4.6 4.3 n.a. 0.7

300134 CH Shenzhen Tat Fook Technolo-A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 22.5 n.a. 5.7 n.a. n.a. n.a.

600198 CH Datang Telecom Tech Co-A 23.15 3,193 28.9 23.2 n.a. n.a. n.a. n.a. 5.6 n.a. 6.8 n.a. -0.5 n.a. 0.0 n.a.

600498 CH Fiberhome Telecom Tech Co-A 26.18 4,285 35.4 28.5 23.4 33.2 26.9 22.7 4.1 3.8 9.1 10.2 3.7 4.5 n.a. 0.8

002396 CH Fujian Star-Net Communicat-A 21.92 1,848 38.5 32.3 23.0 n.a. n.a. n.a. 4.8 4.5 11.6 17.4 6.4 14.9 n.a. 1.2

002281 CH Accelink Technologies Co -A 59.60 1,956 58.8 40.6 29.6 27.8 20.1 n.a. 5.1 4.7 7.1 8.3 4.6 5.3 0.8 0.3

600487 CH Hengtong Optic-Electric Co-A 12.51 2,428 31.4 25.0 20.1 n.a. n.a. n.a. 3.5 2.0 10.1 10.6 3.6 4.1 n.a. 0.6

002491 CH Tongding Interconnection I-A 20.30 3,806 51.1 38.1 22.2 54.7 47.3 41.3 9.0 9.3 8.9 10.9 3.1 n.a. 0.2 n.a.

600522 CH Jiangsu Zhongtian Technolo-A 22.26 3,540 26.7 21.9 18.1 16.7 12.2 n.a. 2.3 2.5 8.6 9.9 5.0 6.4 n.a. 0.8

000070 CH Shenzhen Sdg Info Co Ltd-A 27.29 1,156 78.0 55.7 46.6 33.6 26.6 23.3 6.6 7.1 5.3 9.0 2.4 1.9 n.a. 0.2

300299 CH Fuchun Communications Co L-A 50.60 3,006 133.2 97.3 72.3 n.a. n.a. n.a. 33.9 n.a. 3.7 n.a. 2.9 n.a. 0.1 n.a.

Average 49.5 37.4 29.4 27.0 21.9 21.0 7.6 4.7 9.7 11.5 3.7 5.6 0.4 0.7

PRY IM Prysmian Spa 20.33 4,670 17.4 14.7 12.8 8.9 8.2 7.7 3.7 3.5 10.0 19.4 2.1 3.7 n.a. 2.3

JNPR US Juniper Netw orks Inc 30.41 11,734 15.3 13.8 13.0 8.4 8.2 7.8 2.6 2.7 -5.5 15.8 -3.7 8.3 1.3 1.3

4063 JP Shin-Etsu Chemical Co Ltd 6978.00 24,590 20.4 18.9 17.3 7.3 6.8 6.4 1.5 1.4 6.8 7.3 5.8 7.6 n.a. 1.6

5803 JP Fujikura Ltd 692.00 2,037 13.9 12.4 11.4 6.9 6.7 6.5 1.0 0.9 1.7 7.1 2.7 3.7 n.a. 1.2

MSI US Motorola Solutions Inc 71.83 12,682 21.7 17.8 16.4 11.6 10.9 10.7 n.a. n.a. 40.6 60.1 5.2 7.3 1.9 1.9

CSCO US Cisco Systems Inc 27.24 138,272 12.0 11.4 10.6 6.1 6.0 5.8 2.3 2.2 13.6 17.8 8.9 9.9 3.0 3.1

ALU FP Alcatel-Lucent 3.71 11,171 28.3 15.0 12.5 7.9 6.8 6.1 5.7 4.3 -4.9 13.9 -0.3 -0.9 n.a. 0.0

ERICB SS Ericsson Lm-B Shs 84.40 31,867 17.3 13.9 12.6 8.3 7.0 6.4 2.0 1.9 8.1 9.5 3.9 5.4 n.a. 4.3

NOK1V FH Nokia Oyj n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.#N/A Field Not Applicablen.a. 45.9 13.1 5.4 7.1#N/A Field Not Applicablen.a.

Average 18.3 14.7 13.3 8.2 7.6 7.2 2.7 2.4 12.9 18.2 3.3 5.8 2.1 1.9

PE EV/EBITDA P/B ROE ROA Div yield

Anhui Conch [0914.HK]

BUY (upgraded from HOLD)

Close: HK$21.00 (Nov 27, 2015)

Target Price: HK$27.10 (+29%)

Price Performance

Market Cap US$13,714m

Shares Outstanding 5,299.3m

Auditor KPMG

Free Float 55.0%

52W range HK$20.30-34.15

3M average daily T/O US$30.8m

Major Shareholding Conch Holdings

(36.78%)

Sources: Company, Bloomberg

Wong Chi Man—Head of Research

(852) 3698 6317

cmwong@chinastock.com.hk

Livy Lyu— Research Assistant

(852) 3698 6393

livylyu@chinastock.com.hk

Sources: Company, CGIHK Research

China Cement Sector

We believe Anhui Conch has secured a good deal by injecting four cement plants into West

China Cement [2233.HK; WCC] at an EV/tonne of about RMB860, nearly 2x of replacement

cost. In addition, WCC will become a 51.57%-owned subsidiary of Anhui Conch as the consid-

eration will be settled by shares. The latter’s cement production capacity will increase by 9.8%

after deal completion, a milestone of market consolidation. Although immediate earnings con-

tribution will be limited as WCC only recorded a net profit of RMB2.4m in 1H15 due to unfa-

vourable market environment, their combined market share of >40% in Shaanxi post-deal

should help improve the profitability. We maintain our target price of HK$27.1, based on 1.63x

2016E PBR. Upgrade from HOLD to BUY as the recent correction offers a good entry point.

Investment Highlights

Key info of the deal. WCC proposed to acquire four cement plants located in Shaanxi from

Anhui Conch, including Baoji FHS, Baoji JLH, Qianxian Cement and Qianyang Cement. Each

of them has a clinker production line of 4,500 tonnes/day and a cement grinding system of

2.2m tonnes capacity per year (except Baoji FHS, which has a cement grinding system of

3.8m tonnes capacity per year). WCC will issue 3.4bn new shares at HK$1.35 per share

(HK$4.6bn) to Anhui Conch to settle the transaction. Anhui Conch’s stake in WCC will in-

crease from 21.17% to 51.57%. WCC’s book value per share is HK$1.40 before the transac-

tion while its share price before trading suspension is HK$1.45. The deal will require support

from >50% independent shareholders (i.e. ex-Anhui Conch). Excluding Anhui Conch, WCC’s

chairman Zhang owns 46% of the remaining portion. It should not be difficult to secure an

additional 4% to secure the approval in the extra-ordinary shareholders’ meeting.

Favourable deal to Anhui Conch based on key indicators. We estimate the deal values the

four cement plants at EV/tonne of about RMB860, nearly 2x of replacement cost. The transac-

tion price also implies 1.87x adjusted book value and 2.68x 2014A price/sales (Anhui Conch:

1.44x).

Short-term gain limited but clear long-term positives. As a result of unfavourable market

environment in Shaanxi, WCC only reported a net profit of RMB2.4m in 1H15. However, the

two companies will have a combined market share of >40% (WCC alone: close to 25%) after

deal completion, which should strengthen their pricing power in the region. If we assume WCC

can achieve 12% ROE in the medium term, it will generate a net profit of RMB739m per year,

equivalent to 6.7% of Anhui Conch’s 2014 net profit. Our earnings forecasts remain un-

changed at the moment as the timing of deal completion is uncertain, subject to approval from

regulators and independent shareholders.

To propose a general offer at HK$1.69 per share after the deal. Since Anhui Conch will

own >50% shares in WCC after the transaction, the former will need to propose a general

offer. However, Anhui Conch clearly expressed its intention to keep the listing status of WCC.

A Milestone of Market Consolidation; Upgrade to BUY on Valuation

November 30, 2015

Y/E Dec 31 2012 2013 2014 2015E 2016E

Turnover (RMB m) 45,766 55,262 60,759 53,592 57,168

Recurring net profit (RMB m) 6,293 9,504 10,951 6,425 6,713

Net margin (%) 14 17 18 12 12

Recurring EPS (RMB) 1.19 1.79 2.07 1.21 1.27

% Change (45) 51 15 (41) 4

PER (x) 14.4 9.3 8.0 14.3 14.0

PBR (x) 1.9 1.6 1.4 1.3 1.2

EV/EBITDA (x) 8.3 5.9 5.3 7.6 7.0

0

500

1000

1500

0

10

20

30

40

Dec14 Jan15 Mar15 May15 Jul15 Sep15 Nov15

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

Key financials

Anhui Conch (00914.HK)

Income Statement

(RMB'000, except for per share amount)

Year ended 31 Dec 1H 2H 1H 2H 1H 2H 2012 2013 2014 2015E 2016E

Revenue 23,587,088 31,674,589 28,784,483 31,974,018 24,223,323 29,368,701 45,766,203 55,261,677 60,758,501 53,592,024 57,167,586

COGS (17,023,072) (20,251,896) (18,598,993) (21,961,099) (17,635,061) (22,217,597) (33,264,544) (37,274,968) (40,560,092) (39,852,658) (42,192,275)

Gross profit 6,564,016 11,422,693 10,185,490 10,012,919 6,588,262 7,151,104 12,501,659 17,986,709 20,198,409 13,739,366 14,975,311

Operating expenses (2,212,686) (2,873,948) (2,404,103) (3,220,149) (2,687,472) (3,353,515) (4,458,118) (5,086,634) (5,624,252) (6,040,987) (6,469,484)

Operating profit 4,351,330 8,548,745 7,781,387 6,792,770 3,900,790 3,797,589 8,043,541 12,900,075 14,574,157 7,698,379 8,505,828

Other income and gains 445,405 473,137 484,954 506,809 689,651 534,637 1,054,996 918,542 991,763 1,224,288 1,021,180

EBIT 4,796,735 9,021,882 8,266,341 7,299,579 4,590,441 4,332,226 9,098,537 13,818,617 15,565,920 8,922,667 9,527,008

Net f inance costs (532,341) (436,278) (371,008) (247,929) (246,654) (241,845) (998,855) (968,619) (618,937) (488,499) (564,052)

Profits from associates and JCEs (42,416) 16,734 (26,652) (32,826) 33,428 17,000 (22,829) (25,682) (59,478) 50,428 84,000

Non-recurrent items (141,407) (11,740) (2,199) 41,736 1,887,285 (64,817) 48,844 (153,147) 39,537 1,822,468 -

Income before tax 4,080,571 8,590,598 7,866,482 7,060,560 6,264,500 4,042,564 8,125,697 12,671,169 14,927,042 10,307,064 9,046,956

Income tax expense (912,014) (1,938,151) (1,741,894) (1,618,289) (1,514,374) (950,002) (1,639,068) (2,850,165) (3,360,183) (2,464,376) (2,196,687)

Minority interests (110,040) (321,666) (313,727) (272,215) (35,638) (15,463) (155,526) (431,706) (585,942) (51,101) (137,005)

Net income 3,058,517 6,330,781 5,810,861 5,170,056 4,714,488 3,077,098 6,331,103 9,389,298 10,980,917 7,791,586 6,713,263

Recurring net income 3,164,573 6,339,586 5,812,510 5,138,754 3,299,024 3,125,711 6,293,042 9,504,159 10,951,264 6,424,736 6,713,263

EPS (RMB) 0.577 1.195 1.097 0.976 0.890 0.581 1.195 1.772 2.072 1.470 1.267

Recurring EPS (RMB) 0.597 1.196 1.097 0.970 0.623 0.590 1.188 1.793 2.067 1.212 1.267

DPS (RMB) - 0.350 - 0.650 - 0.441 0.250 0.350 0.650 0.441 0.380

Depreciation and amortization 1,751,688 1,822,365 1,897,808 1,929,961 2,175,521 2,305,742 3,275,946 3,574,053 3,827,769 4,481,263 4,968,002

EBITDA 6,506,007 10,860,981 10,137,497 9,196,714 6,799,390 6,654,968 12,351,654 17,366,988 19,334,211 13,454,358 14,579,009

Cement and clinker ASP (Rmb/tonne) 224.7 248.4 246.3 228.6 204.5 194.5 241.3 237.8 236.7 198.8 200.0

Cement and clinker vol. ('000 tonnes) 103,278 124,658 113,543 135,568 115,360 146,442 186,789 227,936 249,112 261,802 277,266

Cost per tonne (Rmb) 161 156 156 154 146 144 173.7 158.3 155.0 144.8 144.6

Gross profit per tonne (Rmb) 64 92 91 74 59 50 67.5 79.5 81.7 54.0 55.4

Growth Rates:

Revenue 15% 26% 22% 1% -16% -8% -6% 21% 10% -12% 7%

EBIT 16% 81% 72% -19% -44% -41% -44% 52% 13% -43% 7%

EBITDA 15% 62% 56% -15% -33% -28% -34% 41% 11% -30% 8%

Core net income 8% 89% 84% -19% -43% -39% -45% 51% 15% -41% 4%

Recurring EPS 8% 89% 84% -19% -43% -39% -45% 51% 15% -41% 4%

Margins and Ratios:

Gross margin 27.8% 36.1% 35.4% 31.3% 27.2% 24.3% 27.3% 32.5% 33.2% 25.6% 26.2%

Net margin 13.9% 21.0% 21.3% 16.9% 13.8% 10.7% 14.1% 18.0% 19.0% 12.1% 12.0%

EBIT margin 20.3% 28.5% 28.7% 22.8% 19.0% 14.8% 19.9% 25.0% 25.6% 16.6% 16.7%

EBITDA margin 27.6% 34.3% 35.2% 28.8% 28.1% 22.7% 27.0% 31.4% 31.8% 25.1% 25.5%

Effective tax rate 22% 23% 22% 23% 24% 23% 20% 22% 23% 29% 24%

Sources: Company data, CGIHK Research estimates

2015E20142013

Key financials

Anhui Conch (00914.HK)

Balance Sheet Statement of Cash Flow

(RMB'000 , except for per share amount)

As at 31 Dec 2012 2013 2014 2015E 2016E Year ended 31 Dec 2012 2013 2014 2015E 2016E

Inventories 4,038,538 3,692,690 4,375,977 4,600,000 5,000,000 Profit before tax 8,125,697 12,671,169 14,927,042 10,307,064 9,046,956

Trade receivables 230,370 358,861 333,247 400,000 450,000 Depreciation & Amortization 3,105,016 3,429,022 3,773,534 4,251,263 4,718,002

Bills receivable 8,158,709 7,166,484 3,885,568 6,500,000 6,700,000 Change in w orking capital 2,179,477 811,633 3,467,025 (1,756,204) (650,000)

Others 3,068,984 2,618,126 2,663,578 2,810,946 3,010,946 Others / adjustments (3,073,899) (2,956,694) (5,642,793) (509,416) (2,449,569)

Bank balances and cash 8,124,974 11,140,832 14,012,121 14,012,121 14,012,121 Net operating cash f low 10,336,291 13,955,130 16,524,808 12,292,707 10,665,389

Total current assets 23,621,575 24,976,993 25,270,491 28,323,067 29,173,067

Capex (6,157,233) (6,425,753) (6,222,740) (9,500,000) (9,000,000)

PPE, net 52,607,328 56,276,368 62,469,127 67,247,573 71,529,571 Others (2,312,428) (6,050,574) 1,371,626 - -

Prepaid lease payments 3,291,595 3,655,950 4,043,759 3,900,000 4,000,000 Net investing cash f low (8,469,661) (12,476,327) (4,851,114) (9,500,000) (9,000,000)

Others 8,003,025 8,185,169 10,469,720 9,651,386 9,735,386

Total non-current assets 63,901,948 68,117,487 76,982,606 80,798,959 85,264,957 Change in debt 1,301,207 (1,599,709) (2,274,301) 651,840 672,087

Dividends (1,854,760) (1,324,826) (1,854,756) (3,444,547) (2,337,476)

Total assets 87,523,523 93,094,480 102,253,097 109,122,026 114,438,024 Others (945,022) (121,415) (1,526,938) - -

Net f inancing cash f low (1,498,575) (3,045,950) (5,655,995) (2,792,707) (1,665,389)

Trade payables 5,133,852 3,791,010 4,014,855 5,000,000 5,200,000

Other payables 5,705,945 6,391,519 7,188,773 7,500,000 7,500,000 Increase / Decrease in cash 156,162 3,015,858 2,871,289 - -

Bank and other borrow ings 2,658,427 2,934,811 2,329,168 1,000,000 1,000,000 Net cash/(debt) (15,613,087) (11,000,536) (5,904,123) (6,555,963) (7,228,050)

Others 1,023,099 1,427,981 864,211 968,369 901,447

Total current liabilities 14,521,323 14,545,321 14,397,007 14,468,369 14,601,447 Finance Ratios

Bank and other borrow ings 21,079,634 19,206,557 17,587,076 19,568,084 20,240,171 2012 2013 2014 2015E 2016E

Others 1,119,445 940,843 1,041,930 1,460,348 1,458,389 Valuation

Total non-current liabilities 22,199,079 20,147,400 18,629,006 21,028,432 21,698,560 PE(x) 14.4 9.3 8.0 14.3 14.0

EPS grow th (%) 45- 51 15 41- 4

Total liabilities 36,720,402 34,692,721 33,026,013 35,496,802 36,300,007 Yield (%) 1.5 2.1 3.9 2.5 2.1

PEG (x) -0.32 0.18 0.53 -0.35 3.13

Shareholders' equity 48,537,540 55,763,501 65,849,976 70,197,016 74,572,803 EV/EBITDA (x) 8.3 5.9 5.3 7.6 7.0

Minority interests 2,265,581 2,638,258 3,377,108 3,428,209 3,565,214 PB(x) 1.89 1.65 1.40 1.31 1.23

Operational

Revenue grow th (%) 6- 21 10 12- 7

Gross margin (%) 27.3 32.5 33.2 25.6 26.2

Net profit margin (%) 14.1 18.0 19.0 12.1 12.0

Days receivables 77 53 35 38 45

Days payables 56 44 35 41 44

Days inventories 46 38 36 41 42

Current ratio (x) 1.6 1.7 1.8 2.0 2.0

Quick ratio (x) 1.1 1.3 1.3 1.4 1.4

Asset/Equity (x) 1.7 1.6 1.5 1.5 1.5

Net debt/equity (%) 31 19 9 9 9

EBITDA interest coverage (x) 12.4 17.9 31.2 27.5 25.8

Core ROE (%) 13.5 18.2 18.0 9.4 9.3

Sources: Company data, CGIHK Research estimates

Figure 4: Cement Prices in East China (RMB/tonne) Figure 5: Cement Prices in South Central China (RMB/tonne)

Sources: Digital Cement, CGIHK Research Sources: Digital Cement, CGIHK Research

Figure 3: Quarterly Results Highlights

Sources: Company, CGIHK Research

Y/E Dec (RMB '000) Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015

Turnover 8,827,026 11,732,129 11,630,418 13,576,630 9,859,581 13,608,450 13,350,813 18,323,776 12,571,606 16,212,877 14,808,295 17,165,723 11,181,618 13,041,705 13,659,068

Gross Profit 2,325,054 3,130,712 2,632,568 4,413,325 2,431,801 4,112,466 4,380,387 7,042,306 4,439,897 5,745,593 4,364,936 5,647,983 3,240,900 3,347,362 3,172,171

Margin 26.3% 26.7% 22.6% 32.5% 24.7% 30.2% 32.8% 38.4% 35.3% 35.4% 29.5% 32.9% 29.0% 25.7% 23.2%

Operating profit 1,512,729 2,088,404 1,522,124 2,920,284 1,392,036 2,942,145 3,171,830 5,376,915 3,332,341 4,449,046 3,016,401 3,776,369 1,974,797 1,925,993 1,789,941

Net Profit 1,249,018 1,686,914 1,020,539 2,374,632 972,201 2,087,696 2,324,139 4,006,642 2,473,498 3,337,363 2,351,558 2,818,498 1,713,524 3,000,964 1,397,375

Adjusted net profit 1,253,775 1,683,237 1,017,661 2,338,369 970,546 2,219,950 2,326,707 4,012,879 2,476,458 3,337,363 2,347,664 2,791,090 1,662,015 1,637,009 1,462,193

YoY Change -43% -54% -67% 2% -23% 32% 129% 72% 155% 50% 1% -30% -33% -51% -38%

Sales volume ('000 tonne) 33,000 47,550 53,730 52,509 46,300 56,978 58,600 66,058 48,000 65,543 65,000 70,568 50,500 64,860 70,590

YoY Change 11.1% 15.9% 35.2% 10.8% 40.3% 19.8% 9.1% 25.8% 3.7% 15.0% 10.9% 6.8% 5.2% -1.0% 8.6%

ASP (Rmb/tonne) 266 238 217 245 215 229 227 263 250 240 221 231 215 196 179

YoY Change -13.1% -24.9% -31.1% -14.1% -19.2% -4.0% 4.6% 7.3% 16.3% 5.0% -2.6% -12.0% -14.0% -18.2% -19.0%

Gross profit per ton 70 67 52 82 52 74 76 107 91 86 66 82 63 55 44

Figure 1: Peer Valuation

Net debt/equity (%)

Company Ticker Rating Price (HK$) Market cap (US$m) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2015E

Anhui Conch 914 HK Equity BUY 21.00 13,629 8.0 14.3 14.0 1.40 1.31 1.23 5.3 7.6 7.0 9

CNBM 3323 HK Equity HOLD 4.16 2,879 3.2 12.1 6.1 0.46 0.48 0.45 7.4 9.6 8.8 249

BBMG 2009 HK Equity BUY 5.04 6,014 10.7 11.0 7.7 0.61 0.66 0.62 8.3 8.7 7.0 65

CR Cement 1313 HK Equity BUY 2.55 2,136 3.9 6.7 6.9 0.59 0.58 0.54 4.2 6.6 5.7 56

Shanshui Cement 691 HK Equity SELL 6.29 2,725 45.9 42.2 34.7 1.58 1.52 1.47 10.6 10.3 9.4 134

Simple average 14.3 17.3 13.9 0.93 0.91 0.86 7.1 8.6 7.6 103

Weighted average 11.5 15.5 13.3 1.08 1.04 0.99 6.6 8.2 7.3 63

Source: CGIHK Research estimates

PER (x) PBR (x) EV/EBITDA(x)

Figure 2: Peer Comparison

2014 -2016E PEG(x)

Company Ticker 2015E 2016E CAGR (%) 2015E 2014 2015E 2016E 2014 2015E 2016E

Anhui Conch 914 HK Equity (41.3) 4.5 (21.7) (0.7) 18.2 18.0 9.4 2.1 3.9 2.5

CNBM 3323 HK Equity (69.8) 102.5 (21.7) (0.6) 14.4 4.0 7.8 5.0 1.4 2.5

CR Cement 1313 HK Equity (42.1) (3.0) (25.0) (0.3) 14.1 16.2 8.7 4.1 6.7 2.8

BBMG 2009 HK Equity 1.3 46.8 21.9 0.5 6.8 6.1 8.4 1.6 1.2 1.5

Shanshui Cement 691 HK Equity 10.4 21.8 15.9 2.6 3.7 3.7 4.4 - 0.5 0.6

Simple average (28.3) 34.5 (6.1) 0.3 11.4 9.6 7.7 2.6 2.7 2.0

Weighted average (29.9) 25.2 (8.6) (0.0) 13.5 12.4 8.5 2.2 2.9 2.1

Source: CGIHK Research estimates

EPS Growth (%) ROE (%) Dividend yield (%)

200

250

300

350

400

450

500

550

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

East China

2011 2012 2013 2014 2015

250

270

290

310

330

350

370

390

410

430

450

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

South Central China

2011 2012 2013 2014 2015

Figure 6: Rolling Forward PER Range Figure 7: Rolling Forward PBR Range

Sources: Bloomberg, CGIHK Research Sources: Bloomberg, CGIHK Research

Figure 8: EV/EBITDA Range

Sources: Bloomberg, CGIHK Research

5

7

9

11

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25

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Rolling forward PER (x) Average +1 Standard deviation -1 Standard deviation

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P/B trend (x) 1 Standard deviation

-1 Standard deviation Average

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12

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14

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

EV/EBITDA (x) Average (x)

+1 Standard deviation -1 Standard deviation

China Cement Weekly

November 30, 2015

Wong Chi Man—Head of Research

(852) 3698-6317

cmwong@chinastock.com.hk

Livy Lyu—Research Assistant

(852) 3698-6393

livylyu@chinastock.com.hk

Counterattack from Zhang’s Family on Shanshui’s Control; Mild In-

crease in Cement Price Last Week

Cement prices rose 0.13% last week. Average cement price (nationwide) climbed 0.13%

to RMB253.08 tonne last week. Cement prices in part of Chongqing, Guangxi and Guizhou

were up RMB10-20/tonne. Downstream demand gradually recovered as the weather turned

better since late November. Demand returned to normal level in Guangdong and Jiangxi

areas while other regions still saw a relatively weak demand. Average inventory level

(nation-wide) dropped to 75.30% last week.

Coal prices continued to drop last week. Comprehensive average price index for Bohai-

Rim Steam Coal (Q5500K) declined by RMB2/tonne last week to RMB373/tonne. The index

was 27.3% lower on year-on-year (YoY) basis.

Shanshui’s accusations against Tianrui Group. Shandong Shanshui Cement Group

(SSCG), a subsidiary of Shanshui Cement [0691.HK; SELL] has commenced proceedings

in Jinan, Shandong, against Tianrui Group. In an announcement last Friday, SSCG claimed

that from the evidence obtained by the relevant court in connection with such proceedings, it

discovered that Tianrui Group and its related persons made payments in a total sum of over

RMB500m through various individuals and companies to certain individuals who are

minority shareholders of China Shanshui Investment (a substantial shareholder of Shanshui

Cement) and who commenced the petition of the receivership of China Shanshui

Investment. Shanshui Cement believes that some of the acts of Tianrui Group constituted or

might constitute breaches of the laws, regulations and/or codes of Hong Kong and other

jurisdictions. Shanshui Cement has taken steps to report the matters to the relevant

authority, and may take further actions to protect its interest and shareholders. It remains to

be seen whether this latest development will affect Tianrui Group’s plan to hold an extra-

ordinary shareholders’ meeting to appoint its representatives to the board of directors of

Shanshui Cement.

Cement stocks under coverage dropped 7.3% in average last week. Market sentiment

was weak as a result of poor commodity prices and investigations against major brokers.

Best performer was CR Cement [1313.HK; BUY] down 6.3% to HK$2.55/share. BBMG

[2009.HK;BUY] was the weakest among our coverage stocks, which plummeted 8.2% for

the past week.

China Cement Sector

Sources: Company, Bloomberg, CGIHK Research estimates

Valuation Table

Net debt/equity (%)

Company Ticker Rating Price (HK$) Market cap (US$m) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2015E

Anhui Conch 914 HK Equity BUY 21.00 13,629 8.0 14.3 14.0 1.40 1.31 1.23 5.3 7.6 7.0 9

CNBM 3323 HK Equity HOLD 4.16 2,879 3.2 12.1 6.1 0.46 0.48 0.45 7.4 9.6 8.8 249

BBMG 2009 HK Equity BUY 5.04 6,014 10.7 11.0 7.7 0.61 0.66 0.62 8.3 8.7 7.0 65

CR Cement 1313 HK Equity BUY 2.55 2,136 3.9 6.7 6.9 0.59 0.58 0.54 4.2 6.6 5.7 56

Shanshui Cement 691 HK Equity SELL 6.29 2,725 45.9 42.2 34.7 1.58 1.52 1.47 10.6 10.3 9.4 134

Simple average 14.3 17.3 13.9 0.93 0.91 0.86 7.1 8.6 7.6 103

Weighted average 11.5 15.5 13.3 1.08 1.04 0.99 6.6 8.2 7.3 63

PER (x) PBR (x) EV/EBITDA(x)

2014 -2016E PEG(x)

Company Ticker 2015E 2016E CAGR (%) 2015E 2014 2015E 2016E 2014 2015E 2016E

Anhui Conch 914 HK Equity (41.3) 4.5 (21.7) (0.7) 18.2 18.0 9.4 2.1 3.9 2.5

CNBM 3323 HK Equity (69.8) 102.5 (21.7) (0.6) 14.4 4.0 7.8 5.0 1.4 2.5

CR Cement 1313 HK Equity (42.1) (3.0) (25.0) (0.3) 14.1 16.2 8.7 4.1 6.7 2.8

BBMG 2009 HK Equity 1.3 46.8 21.9 0.5 6.8 6.1 8.4 1.6 1.2 1.5

Shanshui Cement 691 HK Equity 10.4 21.8 15.9 2.6 3.7 3.7 4.4 - 0.5 0.6

Simple average (28.3) 34.5 (6.1) 0.3 11.4 9.6 7.7 2.6 2.7 2.0

Weighted average (29.9) 25.2 (8.6) (0.0) 13.5 12.4 8.5 2.2 2.9 2.1

EPS Growth (%) ROE (%) Dividend yield (%)

1-Year Relative Performance

Sources: Capital IQ, CGIHK Research

Peer Comparison

Sources: Bloomberg, CGIHK Research

Market cap

Company Ticker Rating Price (LC) (US$m) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E

Anhui Conch 914 HK Equity BUY 21.00 13,629 8.0 14.3 14.0 1.40 1.31 1.23 5.3 7.6 7.0

CNBM 3323 HK Equity HOLD 4.16 2,879 3.2 12.1 6.1 0.46 0.48 0.45 7.4 9.6 8.8

BBMG 2009 HK Equity BUY 5.04 6,014 10.7 11.0 7.7 0.61 0.66 0.62 8.3 8.7 7.0

CR Cement 1313 HK Equity BUY 2.55 2,136 3.9 6.7 6.9 0.59 0.58 0.54 4.2 6.6 5.7

Shanshui Cement 691 HK Equity SELL 6.29 2,725 45.9 42.2 34.7 1.58 1.52 1.47 10.6 10.3 9.4

TCC International 1136 HK Equity NR 1.44 913 4.9 14.0 8.8 0.40 0.33 0.32 4.0 9.3 8.4

China National Materials 1893 HK Equity NR 1.65 756 8.4 9.3 8.5 0.33 0.34 0.32 6.3 7.5 7.1

Asia Cement 743 HK Equity NR 2.02 406 3.3 42.7 10.4 0.28 0.28 0.27 4.1 9.3 7.3

West China Cement 2233 HK Equity NR 1.45 1,008 149.0 46.0 14.4 1.05 0.96 0.94 7.7 8.4 6.0

Tianrui Cement 1252 HK Equity NR 1.81 557 7.5 n.a. n.a. 0.50 n.a. n.a. 6.8 n.a. n.a.

Simple average 24.5 22.0 12.4 0.72 0.72 0.68 6.5 8.6 7.4

Weighted average 15.5 16.4 12.8 1.02 0.97 0.92 6.5 8.1 7.2

PER (x) PBR (x) EV/EBITDA(x)

Figure 1: Regional Cement Price

Sources: Digital Cement, CGIHK Research

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BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :