FY12 results were in line. On the back of 4% y/y sales decline, net profit was down 32% y/y, or increased 9% h/h, to RMB1,519m, in line with our and consensus estimates. Operating statistics were within expectation – a) sales volume grew 3% y/y to 57mt, while blended ASP was down 8% y/y, or 6% h/h, to RMB267/t; b) GP/t was stable at RMB70/t, declined 23% y/y, but still likely the highest among our covered cement universe. SG&A as % of sales fell to 8% (2011: 8.3%) largely on controlled administrative expense. Net finance cost surged 50% y/y to RMB881m; net gearing was ahead of our expectation, reaching 143% by end-2012 (2011: 110%) due to enlarg ed capital expenditure.
Sales analysis. Shandong remains the largest contributor, accounting for 66% of sales, following by Northeast region’s 29% and Shanxi/Xinjiang’s 5%. The successful price coordination in Northeast led to a 7.5% y/y increase on ASP, reachi ng RMB304/t in 2012. Shandong witnessed a 10% y/y decline to RMB268, while Shanxi’s also down 20% y/y to RMB240/t. Shanxi operation registered a 7% EBIT margin, while Xinjiang still suffer from RMB17m operating loss. High-grade cement remained at 62% of sales. The company expanded its cement capacity to 89.64m t or additional 5.4mt for the year 2012. This is 5% below our expectation.
Earnings estimates. We have not reviewed our forecasts pending an operating update during the post-results briefing on 25 March. Management stated that Chinese government had initiated a batch of major projects and accelerate construction projects in the rural and western regions since the second half of 2012, which in turn to generate cement demand in 2013. The company aims to improve its market presence to enhance regional control, and continue to play its leading role in stabilizing prices so as to maintain a reasonable project in its traditional market of Shando ng and North-eastern China. It will also accelerate project construction in Shanxi and Xinjiang regions. N(V) rating. At HKD4.8, the stock trades at 6.3x PE or 1.0x PB in 2013e. Our target price of HKD6.5 is based on 1.4x PB. We have a N(V) rating on this stock given our concern on high leverage and diluting profitability from Shanxi operation.