Morgan Stanley raised 2009 earnings estimates for China National Building Material Co. (3323) and other Chinese cement makers by an average 21 percent on expectations China’s stimulus plan will increase demand and coal costs won’t gain.
Demand for cement will rise 6 percent in 2009, compared with a previous forecast of 2 percent, the broker said in a note today. Morgan Stanley is still expecting profit for Chinese cement makers to drop by 16 percent.
China said last month it will spend $4 trillion yuan ($581 billion) on a stimulus plan to revive growth in the world’s fourth-largest economy. Coal accounts for 40 percent of the industry’s production costs, more than in the steel, paper or nonferrous metals industries, Morgan Stanley said.
“We see a stimulus package as having the biggest impact on cement demand,” said the note by Charles Spencer. “In view of the recent sharp declines in spot coal prices, we are lowering our coal price assumption for 2009 to 650 yuan a ton from 700 yuan a ton, implying a largely flat year-on-year coal cost.”
The brokerage raised its earnings-per-share forecast for China National Building Material Co. by 28 percent. It increased estimates for China Shanshui Cement Group (691) by 23 percent, and Anhui Conch Cement Co. (914), the largest Chinese maker of cement, by 12 percent.
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