Consensus looks too optimistic
Less resilient outlook. The cement product price outlook is clouded in view of the increase in new capacity in Guangdong and Guangxi. Even with the region’s infrastructure project development in progress, overall construction development in the Southern China market could be less than expected, driving a sales volume decline ahead.
More non-cement development ahead. The company has increased capex on its prefabricated materials business, instead of pursuing acquisitions for expansion as the market has long been expecting. We are concerned that the cash layout and return from these businesses may, at the current stage, be unable to support its generous payout and, in turn, would lead to a cut in future dividends.
Consensus estimate seems unachievable. In anticipation of dimmer growth prospects, we slash our net profit estimate by 14%-16% on lower sales assumptions for the corresponding periods. Downgrade to SELL.