ASP/ACP/Inventory: ASP was c.20RMB lower YoY in Feb and has recovered to the same level in Mar 2012. ACP is 10-20 lower YoY due to lower coal cost. Mgt expect SD(山东)’s GP to improve in 2013. Capacity addition in SX（山西）in 2013 may drag the overall GP by 10-20RMB/t in 2013. Due to mountainous landscape, new lines in SX will not suppress cement price in other regions. Mgt said “SX cement price is RMB30-50/t lower vs SD but coal price is also low. As such GP in SX is even sometimes better than GD.”　Current inventory stands at c.60%.Volume & Capacity: Sales volume target in 2013 is 52-60mt (or 45mt in SD, 15mt in LN), vs 56.9 mt in 2012, which mgt believe conservative.
Clinker capacity will reach 52.9mt by 2013, RMC capacity will reach 20m m3 by end 2013. New capacity in 2013: SD 3.6mt clinker, LN 5-7mt clinker. Mgt thinks new capacity addition will not exert pressure on cement price. Capex will be reduced to 2bn from 2014 onwards, from RMB4.4/4 bn in 2012/13E. In 2013, 3 bn capex will be used for organic expansion, 1 bn for M&A. M&A cost has increased to 450RMB/t during 2011. Lower profit in cement industry in 2012 has led M&A cost to decrease to 400RMB/t.
Financial strength: Long term net gearing target: Total debt/EBITDA <3.5x. AR for RMC is lower than average for Shanshui in SDMgt request cash delivery for most RMC clients while having A/R for gov infrastructure projects and large developers. Dividend payout ratio will be sustained at 30-35%. Shanshui has RMB6bn unused credit facilities with RMB4bn new credit lines under discussion.
Demand outlook: Mgt was upbeat on the demand outlook in 2013, especially for infrastructure, indicating that with more project biddings are undergoing currently, more infra-projects will break ground in 2H13. Rural/infra/property account for 20/45/35% of Shanshui’s total demand.
Kiln suspension & Others: Length of kiln suspension in 2013 will be almost the same as 2012, with SD having 2-3 months, LN having 4 months. Environment authorities inquire <420mg/ m3 NOx emission for existing lines, <320mg/ m3 for new lines. All Shanshui’s existing lines can meet the requirements, but new lines need additional equipment which costs 2.5m RMB each line and needs 1 month to install[The End]