China National Building Material Company Ltd (CNBM), one of the country's largest cement makers, will invest a total of 16 billion yuan in 2011 to further boost its cement production capacity, the company said Monday after reporting a big gain in its 2010 net profit.

The company's net profit for the year ended December 31, amounted to 3.37 billion yuan, up 43.2 percent from 2009 as its revenue soared 56.1 percent to 51.99 billion yuan on increased sales volume and a rise in selling prices.

The board proposed a final dividend of 0.186 yuan per share for 2010, compared with 0.07 yuan per share for 2009.

For 2011, CNBM plans a capital expenditure of 16 billion yuan as it seeks to acquire production capacity though mergers and acquisitions and what its CEO Thomas Cao called "organic expansion".

With these efforts, the company will remain on track to shore up its cement production capacity to 300 million metric tons by end-2012 from 200 million metric tons currently, according to Cao.

The industry has historically suffered from overcapacity. The problem, however, is being solved as the government accelerates phasing out its obsolete capacity, according to Cao.

"The balance between cement supply and demand will continue to improve in 2011," said Cao.

The outdated production capacity eliminated during the year amounted to 107 million metric tons, which is likely to be maintained at around 100 million metric tons for 2011, according to Cao.

And this will take place alongside a further pick-up in cement demand, Cao noted. The China Cement Association has predicted a 7.5 percent increase in cement demand for 2011 after a 15.8 percent gain recorded for 2010.

A better balanced supply and demand will help cement prices, which climbed to a two-decade high during the second half of 2010.

"The recovery in cement prices", Cao said, "will continue into 2011 and beyond on the back of rising demand and continued industry consolidation."

To reflect the strong pricing momentum, Citigroup earlier upgraded CNBM to "buy" from "hold" and raised its target price to HK$47.37 from HK$23.58.

For cement makers like CNBM, there will also be "the favorable impact from the construction of affordable housing projects", according to Chairman Song Zhiping.

"Cement demand will remain robust, supported by the construction of social housing and infrastructure projects," said Song.

Meanwhile, CNBM said Monday that it would issue 10 billion yuan in debt in 2011 in a bid to optimize the company's capital structure and reduce its finance costs, which were recorded at 2.58 billion yuan as of end-2010, up 70 percent from 2009. Highly leveraged with a gearing ratio of 180 percent as of end-2010, CNBM is set to reduce the ratio to around 160 percent in 2011, Cao said. CNBM shares closed Monday in Hong Kong at HK$28.4, up 1.25 percent.

China Daily

(HK Edition 04/05/2011 page3)