West China Cement 1H18 NP was Rmb647mn or EPS of Rmb0.119,up 197% YoY. Excluding one-off items including FX loss, recurringnet profit was Rmb679mn, or EPS-recurring of Rmb0.125, up 259%YoY, above GS estimates and in line with 50% of the FY Bloombergconsensus, driven by strong unit profit improvement, higher VATrebate and income from loans receivable （20% of the earnings inour estimates）。 WCC declared Rmb0.012/sh interim dividend, whichimplies a 10% payout ratio （versus nil in 1H17）。
WCC reported sales volume of cement and clinker n of 8.2mnt for1H18, down 6.5% YoY, behind our expectation. Sales volume inShaanxi, accounting for 83% of the total sales, dropped 7.7%YoY to 6.8mnt. The company’s cement capacity reached29.2mnt as of end of 1H18, yet with low capacity utilization inShaanxi （71%）， Guanzhong （49%）， Xinjiang （36%） and Guizhou（65%）。 Unit gross profit for cement and clinker reachedRmb113/t （Rmb51/t for 1H17）， up 120% YoY, as strong ASP（Rmb313/t up 31% YoY） more than offset the higher unit cost.We estimated the implied unit GP for 2Q18 reached Rmb123/t.Unit COGS was Rmb200/t, up 6% YoY, mainly driven by highercoal price, combined with lower energy efficiency （unit clinkercoal consumption increased by 8% YoY, likely due to lowercapacity utilization）。 Unit SG&A increased 16% YoY to Rmb20/tin 1H18, 10% above our expectation.
Non-core income has increased by nearly Rmb90mn YoY,including higher VAT rebate and interests from loans receivablein our estimates. We estimate the unit VAT rebate on low-gradecement has risen from Rmb21/t in 1H17 to Rmb32/t in 1H18.We estimate that loans receivable （loans provided by WCC to itsupstream suppliers or downstream customers） reachedRmb1.2bn as of mid of 2018, and contributed to Rmb50-60mn