Anhui Conch Cement: Cheap For Good Reasons (OTCMKTS:AHCHF)

Elevator Pitch

I price Anhui Conch Cement Firm Restricted (OTCPK:AHCHF) [914:HK] as a Maintain. The corporate is highlighted as a number one “cement producer in China” that boasts a “13% market share” by Fitch Scores.

My earlier August 6, 2021 write-up touched on each the bull and bear thesis for Anhui Conch Cement. The main focus of this newest article is the inventory’s valuations and the corporate’s This autumn 2023 outcomes preview.

Anhui Conch Cement’s valuations are cheap based mostly on historic and peer comparisons. However the inventory’s cheapness is warranted contemplating its weak monetary outlook. The corporate’s earnings are projected to fall by a high-teens share in This autumn 2023, and there may be the likelihood that its precise fourth quarter web revenue is likely to be even decrease than what the market is anticipating. Considering these elements, I award a Maintain ranking to Anhui Conch Cement.

Readers can commerce within the firm’s shares on the Over-The-Counter market and the Hong Kong fairness market. Anhui Conch Cement’s shares listed on the OTC market and the Hong Kong Inventory Change boasted imply each day buying and selling values of roughly $0.5 million and $12 million (supply: S&P Capital IQ), respectively for the final 10 buying and selling days. Buyers can deal in Anhui Conch Cement’s Hong Kong-listed shares by using the providers of US stockbrokers with entry to international markets corresponding to Interactive Brokers.

Undemanding Valuations

The market at the moment values Anhui Conch Cement at a trailing P/B a number of of 0.46 occasions, a consensus subsequent twelve months’ Enterprise Worth-to-Income ratio of 0.61 occasions, and a consensus subsequent twelve months’ normalized P/E metric of 6.1 occasions. These numbers are sourced from S&P Capital IQ.

It’s cheap to explain the inventory’s valuations as undemanding.

Firstly, Anhui Conch Cement’s shares are low cost on an absolute foundation. The inventory is buying and selling at lower than half of its e book worth, and its Enterprise Worth-to-Income a number of is under 1 occasions. A mid single digit P/E ratio is not precisely costly as properly.

Secondly, the corporate’s key valuation metrics are at a big low cost to their respective historic averages. As a reference, Anhui Conch Cement’s historic 10-year imply P/B, Enterprise Worth-to-Income, and P/E multiples have been a lot increased at 1.49 occasions, 1.41 occasions, and eight.5 occasions, respectively based mostly on S&P Capital IQ information.

Thirdly, the inventory is buying and selling at comparatively decrease valuation ratios vis-a-vis its worldwide friends as highlighted within the peer valuation comparability desk introduced under.

Peer Valuation Comparability For Anhui Conch Cement

Inventory Consensus Subsequent Twelve Months’ Normalized P/E Valuation A number of Consensus Subsequent Twelve Months’ Enterprise Worth-to-Income Valuation A number of Historic Trailing Value-to-Ebook Valuation A number of Anhui Conch Cement 6.1 0.61 0.46 Heidelberg Supplies (OTCPK:HDELY) (OTCPK:HLBZF) [HEI:GR] 7.7 1.04 0.92 CEMEX (CX) 9.5 1.08 11.8 CRH (CRH) 16.3 1.69 2.80 Dangote Cement [DANGCEM:NL] 26.7 6.14 8.67 UltraTech Cement [UTCEM:IN] 34.1 3.92 5.11 Click on to enlarge

Supply: S&P Capital IQ

Nevertheless, the market is likely to be justified in assigning a hefty valuation low cost to Anhui Conch Cement, bearing in mind the corporate’s monetary prospects which I write about within the subsequent part.

This autumn 2023 Outcomes Preview

Anhui Conch Cement is predicted to disclose its monetary efficiency for the ultimate quarter of the earlier 12 months on March 20, 2024.

The corporate’s beforehand introduced Q3 2023 web revenue attributable to shareholders missed the analysts’ expectations by -13% in accordance with S&P Capital IQ’s consensus information. Wanting forward, Anhui Conch Cement’s This autumn 2023 monetary outcomes announcement in late March is unlikely to carry cheer to its buyers. Particularly, the promote aspect is projecting that the corporate’s web revenue attributable to shareholders will drop by -18% YoY to RMB2,491 million (supply: S&P Capital IQ) within the fourth quarter of 2023.

There’s a threat that Anhui Conch Cement’s This autumn 2023 and FY 2023 monetary efficiency might disappoint the market.

Mainland Chinese language analysis agency TF Securities revealed a report (not publicly accessible) on February 2, 2024 titled “Constructing Supplies Sector’s Efficiency Forecast Overview.” On this TF Securities’ report (translated utilizing Google), it’s indicated that six of the seven Mainland Chinese language cement corporations (which excludes Anhui Conch Cement) it tracked have introduced preliminary backside line estimates for This autumn 2023 which are weaker on a QoQ foundation as in comparison with Q3 2023. As a comparability, the market’s consensus forecasts sourced from S&P Capital IQ level to a narrowing of the YoY earnings contraction for Anhui Conch Cement from -26% for Q3 2023 to -18% in This autumn 2023, or an estimated +25% QoQ backside line enlargement for the fourth quarter.

Individually, a February 6, 2024 Fitch Scores analysis report indicated that China’s “cement output in 2023 declined by 4.5%.” In distinction, the market remains to be forecasting a optimistic +2.3% prime line enlargement in native foreign money or RMB phrases for Anhui Conch Cement in FY 2023.

Wanting past 2023, the corporate’s outlook additionally does not appear significantly favorable, if one considers key metrics pertaining to China’s property market outlined under.

Within the firm’s 2023 interim report, Anhui Conch Cement outlined its expectations that “actual property funding will stay low” in 2H 2023 which can damage the “demand of the cement market” in China. There isn’t a indication that the Chinese language actual property market is popping round anytime quickly. A current ballot of economists carried out by Reuters as highlighted in a March 1, 2024 article instructed that China’s “new residence costs would decline 0.9%” this 12 months, and the Chinese language residential property market would require “1-3 years” to “backside out.” Individually, Fitch Scores revised its new residential property gross sales progress forecast for China this 12 months from flat to -5% contraction beforehand to a drop of between -5% and -10% with its newest March 1, 2024 report.

Closing Ideas

Anhui Conch Cement’s depressed valuations are justified, implying {that a} Maintain ranking for the inventory is truthful. There’s a threat of a This autumn 2023 earnings miss for the inventory contemplating cement trade information and its friends’ preliminary earnings estimates. Weak housing gross sales within the Chinese language market have been a drag on cement demand and the corporate’s efficiency, however there aren’t indicators of a restoration in China’s property sector but.

Editor’s Observe: This text discusses a number of securities that don’t commerce on a significant U.S. trade. Please concentrate on the dangers related to these shares.