􀀗 We lift our demand forecast from a 5.7%
CAGR to 10.8% over 2009-12
􀀗 Margin expansion continues as coal
price declines outpace those of cement
􀀗 Top picks: Shanshui, Sinoma and CNBM
We are raising our forecasts for major variables in China’s
cement industry:
􀀗 Consumption: increasing from a 5.7% CAGR to a 10.8%
CAGR over 2009-12 on expected fast volume growth
from filtering through of stimulus package
􀀗 Cement ASP: lift from –6.0% y-o-y to +2.2% y-o-y for
2009. It is up 1.3% in the year to July vs 2008 average
􀀗 Coal costs: lowering our assumption for 2009 from –
15% to –18%. Prices are down 22.3% this year,
underpinning margin expansion
As a result, we increase our estimates for Shanshui, CNBM and
Conch on higher sales volume and margins by 8.2% to 22.9%
for 2009. But we lower estimates for Taiwan Cement and Asia
Cement by 12.3% to 18.4% on weak cement ASPs locally. We
continue to value the stocks on market cap weighted average PE
multiple and EV/ton, which we lift to 16.2x and USD130
respectively (previously 15.2x and USD116), raising our target
prices by 6.5% to 70% after the earnings change.
Our top picks are: 1) Shanshui Cement, which has a low
EV/ton but the second-highest 2009-12e earnings growth; 2)
Sinoma, which has the highest margins due to its exposure to
the Northwest region; and 3) CNBM, the most attractive on
a 2010e PE basis following the recent correction and our
earnings upgrade. We upgrade Conch from UW(V) to N(V).
Risks: New cement capacity may suppress ASPs; coal price
rebound pressuring margins; policy risk in M&A approvals;
a surge in SG&A on slow integration.

Investment summary 3
Lifting demand forecast 11
Prices to rebound in 2H 14
Margin recovery intact 18
Target prices 21
Valuation comparison 23
Consensus change 27
Company profiles 31
Anhui Conch (914) 33
CNBM (3323) 38
Sinoma (1893) 43
Shanshui Cement (691) 49
Taiwan Cement (1101) 54
Asia Cement (1102) 61
Disclosure appendix 68
Disclaimer 71