Not everybody believes Anthony Bolton's optimism on China is justified. But to judge by the recent share price spike, shareholders in West China Cement Ltd (LON:WCC) certainly do.
WCC is an infrastructure play which has benefited handsomely from the Chinese government's stimulus package. Growth has been rapid - earnings growth over the last four years has been at a minimum 18%, and as high as 92% - and the company looks set for future growth.
Two of the company's original three plants are now producing at full capacity, while the newer Ankang plant produced 1.34m tonnes out of its 1.8m tonnes total capacity last year and should be running at its maximum this year. A new plant in Yangxian starts production this month, while the Mianxian plant will come on stream in Q3, increasing capacity by 2.2m tonnes between them.
Though the company is based in Shaanxi province, its newer plants are well located to supply across the border to the Sichuan earthquake zone where reconstruction efforts will require materials. The company will get to 7m tonnes a year full production once the new plants are working, against 5.08 m tonnes produced last year, and is looking to increase capacity to 11.9m tonnes a year by the end of this year - two acquisitions plus new production lines [1] . This will give it about one fifth of the market in its home province - the leader in the south of the province - though the company remains a strong regional company, not a national player [2] .
The recently announced results show revenue up 75%, and operating profit more than doubled, with operating margins up from 33% to 41%. Earnings per share increased from RMB 3.84 to RMB 5.12 [1] . That all looks sterling stuff. Margins expanded as the price of coal fell, while the company sustained the prices which it had increased by 36% in 2008 [3]
However, China's economy is a bit of a worry. It's still growing, but it's difficult to work out how much of that is due to the stimulus package - and there is substantial overcapacity in the cement industry. For instance, an article last year in China Daily suggested that there was a 300m tonne oversupply…
