Asia Cement (China) expands capacity

Last month, we reported that Asia Cement (China) was seeking merger and acquisition opportunities or strategic alliances in China to increase production capacity and improve its competitiveness. This followed the announcement of a 108% y/y increase in profit for the full year ending 31 December 2013. The increased profit was attributed to higher capacity and sales volumes, improved prices and lower coal costs. During the year, the group inaugurated line 5 at Jiangxi Ya Dong Cement Corporation Ltd and achieved full capacity utilisation at its existing 11 production lines, selling 25.73 million t of cement – a 13% y/y increase. Jiangxi Ya Dong Line 6 has since been inaugurated. Revenues for 2013 increased by 10% y/y to RMB7330.8 million, gross profit increased 44% to RMB1616.7 million and gross profit margin grew by 5 percentage points to 22%.

Asia Cement (China) is expecting growth in demand to remain stable at around 6 – 7% while supply is likely to grow at a slower pace due to the government’s continued efforts to restructure the industry to a greater degree of environmental efficiency.

According to reports, Asia Cement (China) Holdings Corp. has agreed the acquisition of a cement company in Sichuan in western China. Parent company Asia Cement, based in Taiwan, is reported to said that the acquisition will make Asia Cement (China) the largest cement supplier in Chengdu, adding 5 million tpa capacity from two production lines to the Sichuan unit’s existing 6 million tpa of cement. With the addition, Asia Cement (China)’s total capacity in China will rise to 35 million t.

The agreement is between Sichuan Yadong Cement Co., Asia Cement (China)’s local unit, and Sichuan Lanfeng Cement Co. and incorporates the latter company’s wholly owned subsidiary Sichuan Lanfeng Building Materials Co. The total investment amounts to a reported 2.05 billion yuan, or US$331 million. The deal is pending approval from shareholders of the two companies and Chinese authorities.

The project at Jiangxi Ya Dong to add kiln lines 5 and 6 has been successful and those kilns are running smoothly with a daily output of 7000 t. This brings the plant’s total capacity to 14 million t, making it among the world’s largest cement plants. The group aims to increase its total capacity to 40 million t in 2015 and 50 million t in 2016.

“2014 is the year in which the Group has all of its 13 production lines in full operation. The Group will continue to actively make timely adjustment to its sales strategy and market planning according to market changes, striving to increase sales volume in regional markets. It will identify appropriate merger and acquisition opportunities to seek suitable targets for acquisition and strategic cooperation through various methods including acquisition of equity interests in small to medium quality cement enterprises, in order to further expand and strengthen its existing operation scale and efficiency,” said Mr. Chang Tsai-Hsiung, Vice Chairman of the Group.