Key takeaways

We attended CR Cement’s roadshow on October 31~November 1,where we spoke with company management and industry experts.

Rebound of Guangxi cement prices to continue in 4Q due toimproving supply and demand conditions; 2013’s ASP will beat thatof 2012. No new capacity this year, demand will be strong.

Good momentum may continue in 2014, because new capacity waslimited – only one 2mnt capacity line is scheduled in 2014, anotherfive have no construction schedule yet; Guangxi has 90mnt totalcapacity – while demand remains robust (FY14 demand growthestimated at 10~12% by Guangxi Cement Association and 10% by CRCement’s management).

CR Cement is the largest cement player in Guangxi, with >30%market share. The Guangxi market is very concentrated, so bigplayers with low costs benefit the most from the improvingsupply-demand conditions. The top three (CR Cement, Anhui Conchand Taiwan Cement) and top six players accounted for 65% and 85%of total market supply.

The concrete market in Nanning is healthy, with capacity utilizationrate of ~85~90%. CR Cement ranks No.2 in this market, and hasstrong influence over it due to its upstream control and lowtransportation costs. Management forecast concrete production of14mnt in 2013, rising by 1.0mnt in 2014.

Recommendation

We maintain our 2013/14 earnings forecasts for CR Cement, with EPSof HK$0.46/HK$0.53, implying 29%/16% YoY growth.

CR Cement is currently trading at 11.3x/9.8x 13/14e P/E. We shift to2014 earnings forecast and revise up our TP by 16% to HK$6.4,implying 12x 2014e P/E. ASP will increase in 4Q and a clear longterm improvement of supply-demand conditions in South China maycontinue to boost earnings growth, we maintain our BUY rating.

Risks

Tightened liquidty policy; economic hard landing; demand slide.

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