Anhui Conch: Transfer Coverage With Moat Rating Downgraded to None; Shares Not Cheap

We transfer coverage of Anhui Conch Cement with our fair value estimate maintained at HKD 26.0 per H-share (CNY 23.9 per A-share). That said, we revise our moat rating down to none from narrow given structural changes in China’s cement industry. We expect overcapacity of clinker and cement production to pose lingering pressure on selling prices, which will weigh on manufacturers’ margins. Although we think property and infrastructure demand should gradually stabilize, the sector should deliver lower profitability compared with the upcycle prior to 2022. While Conch’s unit production cost advantage could partly offset subdued pricing, we think the company’s excess return on invested capital will remain muted, leading to our no-moat rating.