Daily Brief Credit: West China Cement – Earnings Flash – H1 FY 2023 Results – Lucror Analytics and more

WCC’s H1/23 results were softer than expected, as the company reported lower sales volumes and larger-than-expected ASP declines across its plants in Mainland China. In particular, sales volumes and ASP in the company’s stronghold of Shaanxi fell 4% and 16% y-o-y, respectively. Positively, WCC’s expansion in Africa has been progressing well, with overseas operations now accounting for 27% of revenue. The company’s plants in Africa enjoy substantially higher margins than those in China.

In our view, the key risk for WCC is uncertainty regarding the extent of its African expansion, with the company reportedly developing another USD 100 mn cement plant in Rwanda. We believe further expansion into Africa will fundamentally change WCC’s risk profile.

 We move our recommendation on the WESCHI 4.95 26 to “Buy” from “Hold”.

SJM Holdings’ H1/23 results were acceptable, as earnings improved in Q2 after a disappointing first quarter. Crucially, Grand Lisboa Palace continues to ramp up its operations gradually and the asset has achieved EBITDA break-even since June. That said, the company’s overall GGR market share remains meaningfully below its FY 2019 level.​ SJM reported slight positive EBITDA in H1, albeit we believe FCF was slightly negative after interest payments. The company’s profitability is likely to lag that of peers for the next 1-2 years.

We note that some investors are concerned about the economic slowdown in China, which could impact discretionary consumer spending (e.g. gaming and travel to Macau). That said, we believe the Chinese consumer market is large enough to sustain a continued recovery of Macau’s gaming sector. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.