Shanshui Cement delivered FY12 results in-line. Shanshui Cement’s FY12 revenue reached Rmb16,161mn, down 4.2% yoy. Net profit reached Rmb1,519mn, down 31.8% yoy. EPS reached Rmb0.54, down 31.6% yoy.
ASP and GP/t reached Rmb267/t and Rmb72/t, down 8% and 22% yoy.
Cement and clinker sales volume reached 56.9mn tonnes, up 3.5% yoy. The ratios of selling and administrative costs to revenue reached 8.0%, down 0.3ppt yoy.
Negative catalysts: Leverage is too high. The Company’s balance sheet keeps worsening. Net debt reached RMB12,383mn, up 46% yoy. Net gearing ratio reached 143%, up 33ppt yoy. As the Company is a non SOE, we think it will be very difficult for Shanshui Cement to increase its leverage. Finance costs reached RMB926mn, up 49.4% yoy, with average borrowing rate of 7.4%, up 0.8ppt yoy. Cash reached RMB1,083mn, down 64% yoy, accounting for 7% of total revenue, below normal level of 10%. As fundamentals might maintain at current level, we think leverage and borrowing rates might keep increasing.
Maintain TP at HKD4.0 and reiterate “Reduce”. We revise down our FY13-14EPS estimates to Rmb0.476 and Rmb0.522 and introduce FY15 EPS estimates at RMB0.590. Property tightening policy might suppress valuation. We maintain TP at HKD4.0, representing 6.6x 2013E PE, reflecting its high leverage risk. Reiterate “Reduce”