NEWS CENTER

Jiangxi Cement: Benefit from market boom, performance exceeds expectations


Release time:

Nov 02,2011

Net profit in the third quarter increased by 951 year-on-year, exceeding our expectations. Jiangxi Cement realized operating income/net profit of 1.536 billion yuan/0.123 billion yuan in the third quarter, up 45%/951 year-on-year, and realized EPS of 0.31 yuan. In the first to third quarters, a total of EPS1.06 yuan was achieved, accounting for 73% of our annual forecast of 1.45 yuan. Gross margin increased significantly, the cost rate improved the company's production and operation in the third quarter was basically stable. Gross profit margin in the third quarter was 26%, up 1150 basis points year-on-year. Seasonal

3Q net profit grew 951 percent year-on-year, beating our expectations

Benefiting from the sharp year-on-year increase in cement prices and the increase in sales volume, Jiangxi Cement achieved operating income/net profit of 1.536 billion yuan/0.123 billion yuan respectively in the third quarter, up 45%/951 year-on-year, achieving EPS of 0.31 yuan. In the first to third quarters, a total of EPS1.06 yuan was achieved, accounting for 73% of our annual forecast of 1.45 yuan.

Significant increase in gross margin and improvement in expense ratio

The company's production and operation in the third quarter was basically sound. The gross profit margin in the third quarter was 26%, a significant increase of 1150 basis points year-on-year; seasonal factors led to a decline in cement prices in the third quarter, and the company's gross profit margin fell by 460 basis points from the previous quarter. The sales expense rate improved year-on-year/month-on-month, and the management expense rate also decreased significantly month-on-month.

Optimistic about the Prospect of Cement Market in Jiangxi Province

We believe that Jiangxi region is currently the whole East China region supply and demand situation is relatively good, demand growth is relatively healthy and supply growth is limited. In the case of no kiln suspension and production restriction in the whole province, the price correction in the third quarter of this year is also the smallest in East China. We believe that Jiangxi Cement has a strong ability to deliver on its performance. Based on the company's stronger-than-expected profit margin and the continued prosperity of Jiangxi market, we raised Jiangxi Cement's 2011/12/13E profit forecast from 1.07/1.13/1.26 yuan to 1.45/1.67/1.81 yuan.

Valuation: Raise target price to 22.55 yuan, maintain "buy" rating

We are optimistic about the 12-month stock price performance of Jiangxi Cement. Based on the PE of 13.5x in 2012, we raised the target price of Jiangxi Cement from 19.26 yuan to 22.55 yuan, maintaining the "buying rating".