[Commentary] Huaxin Cement's Overseas Expansion Accelerates, "Going Out" or a Good Medicine?

Recently, Huaxin Cement issued a notice. Huaxin (Hong Kong) International, a wholly-owned subsidiary of the company, signed a share sale agreement with INTERCEMENT TRADING INVERSIONES to acquire 100% equity of Natal Portland Cement Company (Pty) Ltd. and completed the equity delivery procedures. After the acquisition, the overseas clinker production capacity of Huaxin Cement will reach 12.5 million tons and the cement production capacity will reach 21.87 million tons. What impact will this have on the depressed industry and Huaxin? Is "going out" a good medicine to resolve overcapacity? Frequent

overseas expansion & nbsp;

Huaxin Cement is an important member of the early "going global" enterprises in China. In 2015, the company formally put forward the overseas development strategy and steadily promoted the overseas business. During the "13th Five-Year Plan" period, the company's overseas business was mainly concentrated in Cambodia, Tajikistan, Kyrgyzstan and other countries. After entering the "14th Five-Year Plan", Huaxin's overseas expansion has accelerated, its business scope has expanded to Zambia, Nepal, Mozambique and Oman, and its expansion is mainly based on acquisition and merger (accounting for 70%). Especially after entering 2023, Huaxin has made frequent overseas moves, taking control of some cement enterprises in the Middle East, Oman and South Africa respectively, and completing the assets delivery quickly. Overseas production capacity has been further expanded.

Table 1: Overseas M & a cases

of Huaxin Cement Source: Cement Big Data (https://data.ccement.com/)

Before 2015, Huaxin's overseas clinker production capacity was less than 2 million tons, which increased steadily during the "13th Five-Year Plan" period. In 2020, it reached 6.17 million tons, and after 2021, overseas expansion accelerated. After the completion of two mergers and acquisitions in 2023, the clinker production capacity expanded to 12.5 million tons, catching up with Conch Cement (13.89 million tons).

Figure 1: Rapid Growth

of Overseas Production Capacity of Huaxin Cement in 2023 Data Source: Cement Big Data (https://data.ccement.com/)

Widening the Moat Since

2022, the domestic cement market has been pre-cooled, and Huaxin's domestic cement business revenue has declined, while its foreign business has been unusually bright. In the first half of this year, Huaxin Cement achieved an overseas revenue of 2.302 billion yuan, an increase of 30.57% over the same period last year, which to some extent hedged the decline in domestic revenue, with overseas revenue accounting for 14.5%, an increase of 0.6 percentage points over 2022.

Figure 2: Huaxin's overseas revenue and proportion continue to increase

Data source: Cement Big Data (https://data.ccement.com/)

Future outlook: Accelerating "going out" is a good medicine?

Huaxin Cement has said that during the "14th Five-Year Plan" period, it will deepen the implementation of overseas development strategy, strive to quadruple foreign production capacity by 2025, and become a multinational group in the whole building materials industry chain. According to the plan, the overseas clinker production capacity of Huaxin Cement will increase by 12.4 million tons during the 14th Five-Year Plan period, 6.33 million tons in 2021-2023 and 6.07 million tons in 2024-2025. In addition to the 2.17 million tons of production lines currently under construction overseas, 3.9 million tons of production capacity will be added in the next two years. Huaxin Cement is backed by powerful overseas shareholders and has rich experience in international operation. It can be predicted that Huaxin Cement will continue to expand its overseas production capacity through equity acquisition. At present, the degree of overcapacity in China has been aggravated for a time, and cement enterprises are actively transforming and looking for new ways out. At present, there is still a large market demand in "the Belt and Road" countries. In addition to expanding the upstream and downstream industrial chains and entering the secondary industry, it is also a feasible way to actively expand overseas markets, which is worth pondering by the industry.

Figure 3: Domestic Overcapacity Becomes More Serious

Data Source: Cement Big Data (https://data.ccement.com/)