UBS has released a research report stating that China's cement industry is only in the middle of a structural demand downturn, but evidence of a bottom is becoming increasingly clear. The firm anticipates the sector's profitability will reach its lowest point this year and begin a mild recovery from 2027 onwards.
Considering that the valuation premium for Conch Cement (00914) has largely normalized, leading to a more balanced risk-reward profile, UBS has upgraded its rating on the stock from "Sell" to "Neutral". However, the firm has simultaneously lowered its target price from HK$21.4 to HK$18.2.
The report indicates UBS has reduced its profit forecasts for Conch Cement for 2026 and 2027 by 16% and 5%, respectively, bringing them down to RMB 7.1 billion and RMB 7.5 billion. The firm has also revised down its forecast for the average selling price of PO-42.5 cement to RMB 345 per ton, reflecting the persistence of low-price competition.
Conversely, UBS expects the price of thermal coal to decline from RMB 750 per ton this year to RMB 720 per ton by 2027. The firm believes this reduction in fuel costs will aid in a gradual recovery of profit margins.
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