June 25, Western Cement announced that it intends to sell its companies and assets in Xinjiang. The target companies are mainly engaged in the manufacture and sale of cement and cement products, the sale of limestone and building materials, and the provision of waste disposal services, with a cumulative price of 1.65 billion yuan. Since the beginning of this year, there have been few cases of large-scale acquisitions in the industry. In this downturn, the merger and reorganization of leading conch will have a significant positive impact on optimizing its own industrial layout and speeding up the reshaping of the industry competition pattern.
Xinjiang's production capacity has increased
significantly, according to the big data of China Cement Network, there are 66 clinker production lines in Xinjiang, with a production capacity of 67.89 million tons. From the perspective of the current competition pattern, CNBM is the largest enterprise in Xinjiang, with a total clinker production capacity of 22.01 million tons, accounting for 32.4%, leading the gap; Qingsong Jianhua ranks second, with a production capacity of 11.883 million tons, accounting for 17.5%; Western Cement has two clinker production lines in Xinjiang, with a production capacity of 2.325 million tons, ranking fifth; Conch Cement has only one 2500t/d production line in Xinjiang, accounting for a relatively low proportion. If Conch Cement successfully acquires the cement assets of Western Cement in Xinjiang, its clinker production capacity will increase to 3.203 million tons, which will surpass Red Lion Holding Group to rank fourth and significantly increase local production capacity, which will play an important and positive role in expanding and strengthening the main cement industry.
Figure 1: Competition in the Xinjiang market before the acquisition Figure 2: Competition
in the Xinjiang market after the acquisition Source: Cement Big Data (https://data.ccement.com/)
Merger and acquisition of high-quality assets
Conch Cement adheres to the business philosophy of "profit is the goal, share is the foundation", and the stability (increase) of market share is the prerequisite for profit. Conch Cement has said that under the background of weak demand and intensified competition, the cement industry will usher in a window period of integration. At the right time, according to the standard of "market, resources and returns", the company will start from the perspective of improving the domestic market layout, promote high-quality M & a projects in areas with low industry concentration and blank market, and build long-term competitiveness of enterprises. In recent years, with the support of numerous infrastructure projects in Xinjiang, the overall demand for cement is relatively stable. In addition, the region is relatively closed, the industry has rich experience in peak staggering, the implementation is good, the cement price is in a high position all the year round, and most enterprises are in good condition. Western Cement Xinjiang Cement Company has certain market competitiveness in the local market, which has a positive effect on the performance of the parent company for many years, and its assets are relatively high quality. After the acquisition of conch, it will undoubtedly increase market share, increase profits, and then enhance its comprehensive competitiveness.
Figure 3: Cement Price Trend
in Xinjiang Data Source: Cement Big Data (https://data.ccement.com/)
Focus on Core Market Accelerate the expansion
of the African market. The operating areas of Western Cement are mainly in the domestic Shaanxi region and the overseas African region, which contribute most of the revenue and profits. In the domestic market, in addition to Shaanxi, Xinjiang and Guizhou are also the places where cement is operated in the western region, which are far away from the base camp of Shaanxi, and their competitive advantages are not prominent. In terms of foreign markets, the economic development in Africa is strong, the demand for cement has a large growth space, the price is much higher than domestic level, the development potential is sufficient, and the operating efficiency is good, which is the focus of the overseas layout of western cement. In recent years, Western Cement has gradually increased its market distribution in Africa. At present, its non-clinker production capacity is 6.67 million tons, slightly lower than that of Huaxin. At present, there are new lines in Uganda and Mozambique, which are expected to be put into operation in the next two years. The sale of Xinjiang cement assets, on the one hand, can shrink the front and focus on the core profit area of Shaanxi; on the other hand, the return of funds can be used to expand the African market, expand the overseas territory and build exclusive core competitiveness.
Figure 4: Year-by-year growth
of non-operating income of Western Cement Data source: Cement big data (https://data.ccement.com/)
Market integration is expected to speed up Competition pattern continues to optimize
the acquisition of cement assets of Western Cement in Xinjiang by Conch Cement, which can be said to be a win-win outcome. For Western Cement, it will focus on the core regions and continue to expand the African market; for Conch, it will continue to improve the domestic layout, expand and strengthen the main cement industry, and share the dividends brought by the overseas development of Western Cement, which sets a good example of merger and reorganization cooperation for the current downturn industry. The author believes that the downward trend of the cement industry in the next few years is irreversible, the benefits are difficult to rebound significantly, and the downturn of the industry will not change in the short term. It is suggested that small and medium-sized enterprises intending to withdraw from the market or transform their development should seize the window period, actively contact and cooperate with large enterprises, jointly promote the process of industry integration, and continuously optimize the market competition pattern.
Figure 5: Industry Concentration Stagnation
in Recent Years Data Source: Cement Big Data (https://data.ccement.com/)
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