Asia Cement Corp (亞洲水泥), the nation’s No. 2 cement producer, is expected to regain growth momentum this year, benefiting from earnings growth in its Chinese operation as well as asset gains, HSBC said in a report.
Last year, Asia Cement’s net profits plunged 38 percent to NT$6.24 billion (US$208.3 million), compared with NT$10.02 billion in 2011, according to a financial statement filed by the company with the Taiwan Stock Exchange.
The figure was 16 percent lower than HSBC’s forecast, according to a report released on Tuesday last week. HSBC did not provide comparative figures.
However, HSBC analyst Elaine Lam retained her “neutral” rating on Asia Cement, with an unchanged 12-month target price of NT$36.45, representing that the stock will be traded at 1.5 times its earnings per share.
Asia Cement is expected to make NT$2.42 per share in earnings this year, a 25 percent jump from last year’s NT$1.93 a share.
“Merger and acquisition activity led to faster-than-expected consolidation in southwest China, leading to a higher-than-expected average selling price for its [Asia Cement’s] Chengdu operation,” Lam said in the report.
Lam said she noticed that earnings from Asia Cement’s Chinese cement operation rebounded strongly in the fourth quarter last year, thanks to the average selling price normalizing in September.
Asia Cement forecast that its production in China will increase 27.2 percent annually this year to 28 million tonnes from 22 million tonnes last year, according to a financial statement posted on the company’s Web site.
Lam also expects a stronger-than-expected non-cement contribution this year.
“A turnaround in dry bulk shipping could act as an earnings driver [for Asia Cement’s shipping subsidiary U-ming Marine Transport Corp (裕民航運)] in the long term,” Lam said.
Asia Cement holds a 38 percent stake in U-ming Marine.
However, HSBC said that downside risks remained for the company, because its operation is small and it lacks pricing power, and that the speed of its expansion in China is slow compared with competitor Taiwan Cement Corp (台灣水泥), the largest cement maker in Taiwan.