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Announcement:

Moody's: West China Cement's 2015 results in line with expectations

16 Mar 2016

Hong Kong, March 16, 2016 -- Moody's Investors Service says that West China Cement Limited's (WCC) 2015 results are in line with expectations and support its Ba3 corporate family and senior unsecured ratings.

WCC's ratings are under review for upgrade, given the pending acquisition by Anhui Conch Cement Company Limited (A3 stable). The transaction is subject to regulatory approvals.

"WCC's standalone credit profile remains adequately positioned in the Ba3 rating owing to its ability to achieve positive free cash flow and maintain moderate debt leverage, despite the adverse market conditions and even after asset impairments and foreign exchange losses. We believe a further upgrade is likely once its acquisition by Conch Cement is completed," says Jiming Zou, a Moody's Vice President and Senior Analyst.

Both WCC's average selling prices (ASPs) and sales volume were pressured by weak demand and intensified competition in Shaanxi Province, as well as weakness in its other two markets: Xinjiang and Guiyang.

WCC recorded a 9.8% year-on-year decline in sales during 2015, which was the second consecutive year of negative sales growth.

In addition to an approximate 9% decline in ASPs, WCC also recorded an approximate 3.4% contraction in cement and clinker sales volume due to the lackluster demand in Shaanxi.

WCC's gross margin declined to 13.2% in 2015 from 15.3% in 2014 owing to lower capacity utilization rates, lower ASPs and higher depreciation.

"However, WCC was able to maintain its adjusted EBITDA at about RMB1 billion in 2015 owing to lower raw material prices, effective cost controls, and when depreciation expenses were added back," adds Zou.

WCC's adjusted EBITDA margin remained flat at 28.0% from 2014.

Moody's expects WCC's revenues and earnings from existing operations to stay flat or decline moderately due to the weak market fundamentals, despite increasing contributions from the two newly commissioned facilities in Xinjiang Yili and Guiyang Huaxi.

Its EBITDA is likely to remain between RMB800 million to RMB1 billion per annum in the next 1-2 years.

Moody's expects WCC's debt/EBITDA to remain stable or decline slightly over the next 12-18 months from about 4.0x in 2015.

In particular, we expect the company to generate positive free cash flow in 2016 for further net debt reduction, given its reduced capital spending.

The company was able to reduce its net debt by about RMB200 million to RMB3.1 billion in 2015.

After more than doubling its capacity over the last decade, WCC entered into a slow growth period after 2014.

Moody's expects WCC's capital expenditure (capex) to remain low, following the completion of its Xinjiang Yili and Guiyang Huaxi cement plants. The company does not have any new construction projects at the moment.

Its committed capex fell to about RMB14 million at end-2015 from RMB180 million at end-2014.

The company's cash balance of RMB730 million, including short-term investments and restricted bank deposits at end-2015, were insufficient to cover its short-term debt of RMB1.3 billion.

However, WCC is able to expand its financing channel by its planned issuance in the domestic market: RMB800 million of first-tranche short-term notes in March 2016.

On 10 March 2016, WCC announced that Yaobai Special Cement Group Co., Ltd. (unrated), its core subsidiary, had registered with the National Association of Financial Market Institutional Investors of the PRC, for the issuance of short-term notes of up to RMB1.2 billion.

The principal methodology used in these ratings was Building Materials Industry published in September 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

West China Cement Limited (WCC) is one of the leading cement producers by capacity in China's Shaanxi province. At end-2015, the company's annual production of cement was 29.2 million tons. Its revenues totaled RMB3.5 billion in 2015.

Anhui Conch Cement Company Limited -- listed on the Hong Kong Stock Exchange since 1997 and the Shanghai Stock Exchange since 2002 -- is the second-largest cement producer in China by production volume. In 2014, the company had 122 cement clinker production lines with about 212 million tons per annum (mtpa) in clinker capacity and 264 mtpa in cement capacity. It recorded sales of RMB60.8 billion in 2014. The Anhui Provincial Government indirectly owns an 18.8% equity stake in the company.

The Local Market Analyst for these ratings is Jiming Zou, +86 (21) 2057 4018.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Franco Leung
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
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JOURNALISTS: (852) 3758 -1350
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Moody's: West China Cement's 2015 results in line with expectations
No Related Data.
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