On December 1, Huaxin Cement announced that it intends to acquire all the shares of Holley Nigeria Caricement B. V and Davis Peak Holding Limited for US $838 million (RMB 6.082 billion). Holcim currently has four large-scale cement plants and six concrete plants in Nigeria, covering the Nigerian national market, with a cement production capacity of 10.6 million tons per year and a concrete production capacity of 400,000 cubic meters per year. How attractive is the Nigerian cement market that Huaxin should spend thousands of yuan on?
First, Nigeria is an important fulcrum
to open up the cement market in West Africa. The overseas business of Huaxin Cement has become an important business pillar of the company. From the perspective of Huaxin's overseas layout in Africa in the past, it is mainly concentrated in southern Africa. Nigeria is located in the southeast of West Africa, bordering the Gulf of Guinea in the Atlantic Ocean in the south, Niger in the north, Benin in the west, Cameroon in the east, and Chad in the northeast across Lake Chad. Nigeria is rich in natural resources, fertile land, large population and huge market potential, which is a hot land full of business opportunities. This acquisition is expected to open up a new pattern of Huaxin's overseas West African cement market.
Figure 1: Market Layout
of Huaxin in Africa Source: Cement Big Data (https://data.ccement.com/)
II. Nigeria has great
potential for cement development. According to the Ministry of Commerce, Nigeria's manufacturing industry has a low level of development, and most industrial products are still dependent on imports, including cement. Nigeria is a country with a large population in Africa, and its population continues to grow. From 2013 to 2023, Nigeria's population grew at an annual rate of more than 2%. According to the data of the Ministry of Commerce in July 2024, Nigeria's population is 227 million (2024), and the population is still growing. In recent years, the Nigerian government has increased its investment in infrastructure, including roads, railways, bridges and housing projects, which require a large amount of cement as building materials. As the population grows and urbanization accelerates, the demand for residential and commercial buildings is also increasing, further boosting the cement market in Nigeria. At present, the per capita annual cement consumption in Nigeria is about 140 kg (it is estimated that the cement output in 2024 will be 32.5 million tons/year and 227 million people), which is far from the current per capita annual cement consumption level in China and the world, and the development potential of cement in Nigeria is huge.
Figure 2: Nigeria's demographic dividend, with an annual growth rate of over 2%
Source: Cement Big Data (https://data.ccement.com/)
III. Nigeria's market concentration is high.
The Nigerian cement market is relatively concentrated, and there are only three cement manufacturing enterprises in the Nigerian cement market: Dangote Nigeria Co., Ltd. (Cement production capacity of 32.25 million tons/year, accounting for 50.2%), BUA Group (21.5 million tons/year, accounting for 50.2%). 33.5%) and Lafarge Africa Cement Co., Ltd. (10.5 million tons/year, 16.3%), with a total cement production capacity of 64.25 million tons/year. The main asset of Huaxin's acquisition is the 10.5 million tons/year cement production capacity of Lafarge Africa Cement Co., Ltd. High market concentration can make better use of economies of scale, reduce costs and improve profit margins. In addition, if there are few cement competitors, the ability of enterprises to control pricing will be improved. Major enterprises can control market prices to a certain extent, so as to better control market competition, and consumers'brand recognition will also be improved, which is conducive to Huaxin Cement brand entering other countries in West Africa.
Table 1: Production Capacity
of Three Major Cement Producers in Nigeria Source: Cement Big Data (https://data.ccement.com/)
IV.
According to the announcement of Huaxin Cement, the target company of this acquisition will have operating income of 452 million US dollars and 291 million US dollars in the first nine months of 2023 and 2024, net profit of 56.971 million US dollars and 36.346 million US dollars, net interest rate of 12.6% and 12.5%, respectively. The latest data of Huaxin Cement's three-quarter report shows that the company's net interest rate in September is 6.39%, and the profitability of Nigeria is about twice that of Huaxin, which will bring new growth points to Huaxin's overseas performance.
Table 2: Financial Data of the Target Company (USD 10,000)
Data Source: Cement Big Data (https://data.ccement.com/)
V. The four cement plants included in the acquisition target of Huaxin have considerable
potential for technology and management improvement after the acquisition of production lines in Nigeria. Many production lines were built before 2000. These production lines have problems of aging technology and backward management, and have great potential for improvement. Huaxin Cement has rich experience in overseas mergers and acquisitions of production lines, especially in reconstruction and upgrading, energy saving and emission reduction, consumption reduction and cost reduction, quality improvement and efficiency enhancement. In 2012, Huaxin Cement acquired and took over the Cambodian factory. Due to the aging equipment and backward management, the factory had been in a state of shutdown when Huaxin took over. After Huaxin took over the factory in Cambodia, the new clinker production line and biomass fuel disposal production line were put into operation, and rice husk, sawdust, bagasse and other biofuels were used, which not only saved the shutdown status of the factory in Cambodia, but also greatly reduced the production cost of the cement factory in Cambodia (the cost of rice husk is less than half of the price of imported coal by converting rice husk into production fuel). Huaxin plans to upgrade its kiln following its acquisition of the Zambian cement plant, and its Ndola plant has launched a $20 million kiln upgrade project that will double the plant's cement capacity from 500,000 tons per year to 1 million tons per year. According to the semi-annual report of Huaxin in 2024, Huaxin has generally upgraded or built new M & a factories in Africa, such as new production lines in Mozambique, Malawi, Zambia and South Africa. The acquisition of Nigerian production line by Huaxin is expected to push Huaxin Nigerian cement plant to a new level by virtue of its overseas production line improvement and management experience.
Table 3: Four cement plants
of Lafarge Africa Cement Co., Ltd. Source: Cement Big Data (https://data.ccement.com/)
