Shanshui Cement issued a profit warning yesterday saying thatunaudited 1H13 net profit will decrease by not less than 40%y/y.

Profit decline due to sustained low level of ASP. Thatmeans 1H13 earnings will be at most Rmb437m (1H12:Rmb728m), accounting for only 25% and 28% of our andconsensus full-year estimate. The company attributed theprofit decline to over-capacity and sustained low prices since4Q12. In particular, cement ASP in 1H13 failed to reach itsexpected level and remained low y/y.

Cement ASP in Jan-May down Rmb30/t y/y. Based on ourconversation with the management, sales volume inJanuary-to-May grew 3.3% y/y to 20.73m tonnes (Jan-May2012: 20.06m tonnes), and the growth is slower than theirfull-year expected growth of 5%. Although the price trend in2Q13 was steady, cement ASP did not recover as much asthey expected. Over the first five months of this year, cementASP was still Rmb30/t lower than last year (ie Rmb252/t vs.

Rmb286/t during the same period in 2012).

Lower coal price could not offset ASP weakness.

Management also indicates that coal price fell Rmb20/t likeother regions in mainland China, but the decline was notsufficient to offset the weakness in ASP. The company did notprovide an update on the cement ASP for the month of June.

Downgrade following interim results. Our earningsestimates and stock rating are pending for downgradefollowing the interim results announcement after mid-August.

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