Companies: WCC   

Cement may lack the glamour of gold, the drama of gambling or the excitement of media, but as a way to participate in the fruits of China’s economic growth there is much to commend it. The economy of the world’s most populous nation is growing at more than ten per cent a year and, even if that cannot proceed without periodic measures to curb overheating, the materials needed for building and construction are likely to remain in demand.

West China Cement, founded and run by experienced chief executive officer Jimin Zhang, raised £22 million at 105p through an AIM float handled by broker Insinger de Beaufort and looks particularly well placed to benefit from the underlying strength of the overall Chinese cement market. Playing an important role in China’s landlocked Shaanxi province, the company more than doubled pre-tax profits last year to £5.8 million on turnover 33 per cent ahead at £20.5 million. Its shares have risen to 161p.

Chairman Robert Robertson, the former boss of Britain’s Tarmac group, said West China is committed to an aggressive policy of expansion, which should see the company lift production from 1.47 million tonnes last year to 3.5 million tonnes in two years. Zhang hopes eventually to take capacity to 5.5 million tonnes.

West China is increasing production with new facilities at Lantian near Shaanxi’s provincial capital of Xi’an. Building such facilities should offer appreciable transport cost savings – an important element in the economics of cement. According to Robertson, the first plant at Lantian ‘fired up’ in early April and a second plant, adding another one million tonnes and taking the total to 3.5 million, should be up and running by the fourth quarter of this year.

What distinguishes West China Cement from the myriad of small-scale local competitors is that the company produces dry-processed cement. This is significantly more economic to produce than the old-fashioned wet-processed product still made by the local outfits, uses energy far more efficiently and does much less damage to the environment than the wet process.

Robertson points out that it is official Chinese policy to run down the old wet-processing production and switch to the dry process. Doing so should help accelerate the process of consolidation within the industry, a development that has the government’s blessing and one in which politically well-connected West China could play a big role.

The company’s location should work in its favour too, argue bulls. China’s economic growth has been uneven, concentrated towards the south and on the coast. China is attempting to counteract this by encouraging infrastructure projects in other parts of the country, such as Shaanxi province.

West China, whose finances are assisted by the proximity of its plants to deposits of limestone from which its raw material is drawn, is able to benefit from the tight supply/demand position in China at present which, says Robertson, has enabled the company to make useful price rises stick. He adds that a new project is under consideration at Ankary to the south of the province.

Ankary is cut off by the mountains in the north, which means the cement must be transported 500 km. West China is thinking of building a two- million tonne plant in Ankary to overcome this obstacle.

Lantian cost £30 million, said Robertson, adding that ‘the Chinese can put up a plant very quickly and to a high quality’. Ankary ‘could cost a bit more’ and the company is considering financing options for the project, which ‘hopefully will come from our own resources with some borrowing’.

As a registered foreign company in China, West China Cement can remit profits and dividends to the UK. Robertson said the board hopes to recommend a significant payout ‘in a year or so’. This year, the market will look for an impressive profits rise to £10.5 million, cementing the share’s speculative appeal.

West China Cement	AIM	£41.99m	65.50p	0.50p
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Other company articles:
West China weathers the storm			31/03/2008
West China Cement on expansion trail			01/05/2007
West China Cement expands			27/03/2007
Newcomer - West China Cement			04/12/2006