Greater China Equity Long/Short Analyst

Eric Chen

Equity Bottom-Up

<ul>
<li>Recent significant clinker price hikes in Yangtze river region boost our confidence that 4Q will likely see the company’s earnings double Y/Y, ending 14 consecutive quarters of decline since 2Q21.</li>
<li>Beijing’s bazooka stimulus package to lift the property market and revive economy also improve industry outlook in 2025.</li>
<li>Consensus has been slow to adjust for the changes in industry dynamics. Our 2024 earnings is now 15% above consensus. We expect upward earnings revision will support P/B expansion.</li>
</ul>


Recent significant clinker price hikes in Yangtze river region boost our confidence that 4Q will likely see the company’s earnings double Y/Y, ending 14 consecutive quarters of decline since 2Q21.
Beijing’s bazooka stimulus package to lift the property market and revive economy also improve industry outlook in 2025.
Consensus has been slow to adjust for the changes in industry dynamics. Our 2024 earnings is now 15% above consensus. We expect upward earnings revision will support P/B expansion.


Anhui Conch (914 HK): Sharp Price Hikes Boost Our Confidence in 4Q Turnaround

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Huge volumes continue to be traded on the mainland share markets. SOUTHBOUND volumes are dropping fast (down 28%wow, down 60-65% vs peak a few weeks ago).</li>
<li>AH premia expanded on average. Liquid H/A pairs saw the H underperform the A in the pair by 1.52% last week. </li>
<li>Continuing differences in opinion between onshore and offshore opinion regarding the vibe of Chinese stimulus will continue to lead to interesting dispersion. Identify the trend and jump in.</li>
</ul>


Huge volumes continue to be traded on the mainland share markets. SOUTHBOUND volumes are dropping fast (down 28%wow, down 60-65% vs peak a few weeks ago).
AH premia expanded on average. Liquid H/A pairs saw the H underperform the A in the pair by 1.52% last week. 
Continuing differences in opinion between onshore and offshore opinion regarding the vibe of Chinese stimulus will continue to lead to interesting dispersion. Identify the trend and jump in.


A/H Premium Tracker (To 1 Nov 2024): AH Premia Higher as A-Share Tech Underperforms

<ul>
<li>We believe Anhui Conch is near the end of a prolonged downturn. Earnings should have bottomed out in 1Q24, with highly visible sequential Q/Q improvements throughout the rest of 2024.</li>
<li>The recovery is not demand-driven but cost-led as implementation of new national standards resulting in higher production costs led to industry-wide price-hikes, benefiting Anhui Conch the low-cost producer.</li>
<li>We see mild rebound in cement demand in 2025 will pave the way for further price hikes, reinforce the company’s earnings recovery and catalyze valuation expansion.</li>
</ul>


We believe Anhui Conch is near the end of a prolonged downturn. Earnings should have bottomed out in 1Q24, with highly visible sequential Q/Q improvements throughout the rest of 2024.
The recovery is not demand-driven but cost-led as implementation of new national standards resulting in higher production costs led to industry-wide price-hikes, benefiting Anhui Conch the low-cost producer.
We see mild rebound in cement demand in 2025 will pave the way for further price hikes, reinforce the company’s earnings recovery and catalyze valuation expansion.


Anhui Conch (914 HK): Turnaround in Sight

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>Stable cement price, good cost control, and a better base for comparison will lift <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a>'s profitability recovery in 2-4Q24.  <a href="https://www.smartkarma.com/entities/anhui-gourgen-traffic-cons-a" target="_blank" data-smartkarma-citation="entities:30237:1" rel="noopener"></a>
</li>
<li>Anhui Conch's earnings outperformed in 1Q24. Its peers are making losses and hence will reduce excess supply. Stabilisation of the real estate market will lower the pressure on demand.</li>
<li>Net cash equals 46% of the current share price, and its valuations (both PER and P/B) are inexpensive relative to peers and ROE.  </li>
</ul>


Stable cement price, good cost control, and a better base for comparison will lift Anhui Conch Cement (914 HK)'s profitability recovery in 2-4Q24.  

Anhui Conch's earnings outperformed in 1Q24. Its peers are making losses and hence will reduce excess supply. Stabilisation of the real estate market will lower the pressure on demand.
Net cash equals 46% of the current share price, and its valuations (both PER and P/B) are inexpensive relative to peers and ROE.  


Anhui Conch Cement (914 HK): Increasingly Favourable Odds

China Conch Venture Holdings / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.</li>
<li>The company's waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.</li>
<li>We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China's new energy industry.</li>
</ul>



China Conch Venture Holdings (586 HK) is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.
The company's waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.
We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China's new energy industry.


Conch Venture (586 HK): An Overlooked Value Play

China

Anhui Conch Cement Company Limited manufactures cement products. The Company produces silicate cements, slag silicate cements, composite silicate cements, cement clinkers, and other products. Anhui Conch Cement Cement markets its products throughout China and worldwide.

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Anhui Conch Cement (600585 CH)

Anhui Conch (914 HK): Sharp Price Hikes Boost Our Confidence in 4Q Turnaround

Clinker price hikes in Yangtze river region signal potential for company's earnings to double in 4Q, ending 14 quarters of decline.

Eric Chen

Anhui Conch (914 HK): Turnaround in Sight

We see Anhui Conch at the cusp of earnings recovery cycle which will extend well into 2025 and beyond, driving P/B expansion from current 0.7x to...

Eric Chen

Anhui Conch Cement (914 HK): Increasingly Favourable Odds

Anhui Conch Cement has rallied 14% in last week on the back of the government’s rescue of the property market through buying of unsold homes by...

Osbert Tang, CFA

Conch Venture (586 HK): An Overlooked Value Play

The market has deeply undervalued Conch Venture's waste-to-energy business as reflected by the negative stub value. New business initiatives and...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Anhui Conch (914 HK): Sharp Price Hikes Boost Our Confidence in 4Q Turnaround

​Clinker price hikes in Yangtze river region signal potential for company's earnings to double in 4Q, ending 14 quarters of decline.

Eric Chen

A/H Premium Tracker (To 1 Nov 2024): AH Premia Higher as A-Share Tech Underperforms

AH premia widened this week with liquid spreads widening more than average spreads. The premium curve was inconsistent. Opportunistic reversion...

Travis Lundy

Anhui Conch (914 HK): Turnaround in Sight

We see ​Anhui Conch at the cusp of earnings recovery cycle which will extend well into 2025 and beyond, driving P/B expansion from current 0.7x to...

Eric Chen

Anhui Conch Cement (914 HK): Increasingly Favourable Odds

Anhui Conch Cement has rallied 14% in last week on the back of the government’s rescue of the property market through buying of unsold homes by...

Osbert Tang, CFA

Conch Venture (586 HK): An Overlooked Value Play

The market has deeply undervalued Conch Venture's waste-to-energy business as reflected by the negative stub value. New business initiatives and...

Osbert Tang, CFA

Clinker price hikes in Yangtze river region signal potential for company's earnings to double in 4Q, ending 14 quarters of decline.

We see Anhui Conch at the cusp of earnings recovery cycle which will extend well into 2025 and beyond, driving P/B expansion from current 0.7x to...