China cement weekly ASP remains flattish

China’s cement ASP remained unchanged at CNY331/t (Grade 42.5product) for the week ended 28 June 2013, according to Digital Cement(DC). The cement ASP did not increase in any region last week owing toweak demand as the market heads into the slow season. For 2013 YTD,South China was the worst performing region, with a 13% ASP drop toCNY309/t. We forecast China’s cement ASP will drop 3% further in 3Q13F(CNY10/t). We anticipate more ASP declines over the next 1-2 months;however, this has been well expected by the market, in our view.

Mixed ASP changes for low-grade product

The cement ASP in East China (Jiangxi province) for low-grade product(Grade 32.5) decreased CNY10/t (4% w-w) to CNY330/t. Aiming tostabilizing the ASP, a new round of price coordination hasbeen carried outin East China. According to DC, the major players in East China haveagreed to shut down 30% of total clinker capacity from 27 June 2013 to 24July 2013. With this, we still forecast the cement ASP in East China will fallfurther by 6% (CNY20/t) in 3Q13F. The cement ASP in South China(Guangdong and Guangxi provinces) remained unchanged w-w atCNY293/t, suggesting a YTD decline of19% from CNY360 on 5 January2013, thus making it the worst performer among all regions.

Inventory level: Further rise in East China

According to DC, the cement inventory level in China gradually built-up by0.3pp to 69% over the week ended 28June 2013. Notably, the cementinventory level for East China increased by 1.0pp to 69% last week, thustaking the inventory level increase to over 10% within the last six weeks.

As inventory levels continue to build up, we think the ASP is underdownside pressure in 3Q13F. The cement inventory level in South China(Guangdong and Guangxi provinces) remained high at 73% last week,thus capping upside potential on cement ASP increases, in our view.

Action: Conch reached stock price floor; Buy

We recommend investors accumulate Conch from current levels, given: 1)the stock is approaching its price floor level of HKD20-21 under the worstscenario (Please refer to our report “Why buy Anhui Conch now?”published on 13 June 2013); 2) valuationsare attractive; 3) we forecastpositive y-y earnings growth for 2013F; and 4) short term ASP declinesalready in the price, in our view.

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