SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Hong KongInitiating Coverage 30 May 2012

China Shanshui Cement On The Cusp Of A Demand Rebound Initiate with BUY on gradual recovery. We initiate coverage on Shanshui Cement (691 HK) with a BUY rating and target price of HKD7.81, equivalent to 7.0x FY12F PER. Our investment thesis includes a gradual pick up of production volume from 2Q12, strong geographical presence in the Shandong region as well as an improving margin outlook with stable ASPs and easing cost pressures. We forecast that the company will recover from an output decline in 1Q12 to deliver a 19% EPS growth in FY12F, one of the fastest amongst listed peers. Our target price offers 34% upside from current levels.

Hiccup in 1Q12, recovering from trough. Similar to other cement peers, Shanshui also had a slow start to FY12 as sales volume slipped by 9.5% YoY in 1Q12. This was due to adverse weather conditions in the PRC, which resulted in various delays in construction activities, thus affecting demand for cement. Latest datapoints suggest that the operating environment has improved, with production volumes recovering from their troughs. We project the company’s total production in 1H12F to increase 17% YoY as demand for cement recovers.

Prices stable due to effective output control. The aggressive planned closures of obsolete cement capacity announced by the PRC government will effectively eliminate inefficient players in the region, which in turn will strengthen Shanshui’s leading position and enhance its pricing power going forward.

Stable coal price improves GP/tonne. With the NDRC effectively putting a cap on coal prices earlier this year, coal prices have stabilised at CNY645/tonne. We estimate the softening coal prices will improve Shanshui’s GP/tonne by 5% to CNY97/tonne in FY12F, translating to a GM ratio of 32% in FY12F, as compared with 30% in FY11.

China Shanshui Cement – Summary Earnings Table FYE Dec (CNYm) 2011A 2012F 2013F 2014FRevenue 16,862 21,031 23,996 27,112EBITDA 4,764 5,825 6,558 7,318Recurring Net Profit 2,225 2,650 3,030 3,480Recurring Basic EPS (cents) 79 94 108 124EPS growth (%) 125.7 19.1 14.3 14.8DPS (cents) 19.6 30.6 35.0 40.2 PER 5.6 5.3 4.6 4.0EV/EBITDA (x) 4.6 4.4 4.2 4.1Div Yield (%) 3.2 6.3 7.1 8.1P/BV(x) 1.9 1.8 1.5 1.2 Net Gearing (%) 55.4 53.5 49.6 46.6ROE (%) 27.2 27.2 26.2 25.3ROA (%) 8.9 9.0 9.3 10.0Consensus Net Profit (CNYm) 2,312 2,753 3,035Source: Company data, Kim Eng Securities

BUY

Share price: HKD5.85 Target price: HKD7.81

Catherine CHAN catherinechan@kimeng.com.hk (852) 2268 0631

Stock Information

Description: China Shanshui Cement (691 HK) is the largest cement manufacturer in Shandong and it mainly operates in Shandong and the Northeast regions. Ticker: 691 HK Shares Issued (m): 2,816 Market Cap (USDm): 2,112 3-mth Avg Daily Turnover (USDm): 7.5 HSI: 19,055 Free Float (%): 69.9 Major Shareholders: % China Shanshui Investment Co.Ltd. 30.1 Key Indicators

ROE – annualised (%) 27 Net debt (CNYm): 8,457 NTA/shr (CNY): 3.0 Interest cover (x): 6.2 Historical Chart

Performance: 52-week High/Low HKD4.25/HKD10.20 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) (8.1) (12.5) 4.4 (17.1) 3.4 Relative (%) 2.4 (6.9) 1.2 (10.1) 9.7

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Source: Bloomberg

30 May 2012 Page 2 of 16

China Shanshui Cement Group Limited

Investment thesis

Leading producer in the cement industry. China Shanshui Cement Group (Shanshui) was incorporated in the Cayman Islands in 2006. As one of the 12 large-scale cement enterprises receiving support from the PRC government in terms of project approvals, land use rights and credit approvals when undertaking M&A and project investments, Shanshui has actively carried out market consolidation through organic growth and acquisitions in Shandong and Liaoning Provinces, achieving rapid growth and becoming the largest cement producer in Shandong and Liaoning.

M&A and reorganisations in progress. By 2015, the PRC government aims to reduce the number of cement enterprises by a third as compared with 2010, and the production concentration ratio of the top ten cement enterprises will reach over 35% with an average production capacity of 70m tonnes per enterprise. With the increased concentration ratio, conglomerates will play a leading role in prices and in the market.

Shandong’s development strategy drives demand. Amid a volatile domestic and international environment, the PRC government has continued to maintain fixed asset investment (FAI) on a relatively large scale to “achieve progress while maintaining economic stability”. Also, the 2012 Central Economic Work Conference had set out to sustain the rate of urbanisation in the country. Shandong province will emphasise the construction of the “two economic locomotives” namely, Shandong Peninsula Blue Economic Zone and Yellow River Delta High-efficiency Ecological Economic Zone. The province’s planned FAI will reach approximately CNY3.1t in 2012, much higher than in the past few years (in 2009/2010/2011, FAI was CNY1.9t/2.3t/2.6t). As the largest cement producer in Shandong, Shanshui has benefited from these investments.

Expanding sales network coverage. Since 2009, Shanshui has established a brand presence in Inner Mongolia, Shanxi and Xinjiang provinces, and as a result, a number of expansion projects are now underway. Shanshui’s high product quality and strong brand name provides it with pricing power and assists in attracting new customers.

30 May 2012 Page 3 of 16

China Shanshui Cement Group Limited

Company Background

A cement producer in the East and Northeast. Shanshui was founded in the 1990s and the company was incorporated in the Cayman Islands in 2006. Its products are primarily sold to customers in Shandong and Liaoning provinces, both highly industrialised regions. Shanshui produces and sells a wide variety of cement products using NSP technology, which emits lower levels of pollution compared to non-NSP technology. The net profit of the company surged 127% to CNY2.2b in FY11. Since 2009, the company has established a presence in Inner Mongolia, Shanxi and Xinjiang provinces.

Figure 1: Location of production facilities in China

Source: Company data, Kim Eng Securities

Figure 2: Key development milestones

2H07 Established presence in Liaoning and acquired five cement producers in Shandong

Early 2008 Acquired exploration rights to approx. 100m tonnes of limestone located in Liaoning to support cement production in Liaoning

Jul 2008 Listed in Hong Kong on 4 July 2008; IPO was oversubscribed

Dec 2008 Won the Awards for Achievement 2008 – Best Mid-Cap Equity Deal from Financial Asia - one of the most influential financial magazines in Asia

2009 Established presence in Inner Mongolia, Shanxi and Xinjiang Provinces

Nov 2010 Included in MSCI Global Standard Indices – MSCI China Index

Mar 2012 Included in Hang Seng Mainland 100 Index Source: Company data, Kim Eng Securities

30 May 2012 Page 4 of 16

China Shanshui Cement Group Limited

Figure 3: FY11 revenue breakdown by geography Figure 4: FY11 revenue breakdown by products

Source: Company data, Kim Eng Securities Source: Company data, Kim Eng Securities

Figure 5: FY11 cost structure

Source: Company data, Kim Eng Securities

Production capacity. Shanshui currently has 27 clinker and cement production lines in operation. The company’s total clinker/cement capacity will increase 15.5%/12.3% YoY to 43.2/94.7m tonnes in FY12F.

Figure 6: Cement and clinker production capacity

   Number of

Clinker capacity (mt per year)

Cement capacity(mt per year)

Region Province production line 2011 2012F 2011 2012F

Eastern Region Shandong 16 23.5 25.1 53.9 55.8

Northeast RegionLiaoning 5

11 11 25.9 27.9Inner Mongolia 3

Northern Region Shanxi under construction - 4

in operation - 32.9 5.5 4.5 8

Western Region Xinjiang under construction - 1 0 1.6 0 3

Total: 37.4 43.2 84.3 94.7Source: Company data, Kim Eng Securities

Shandong76.2%

Northeastern (Liaoning &

Inner Mongolia

23.1%

Shanxi0.7%

High Grade Cement51.3%Low Grade

Cement32.5%

Clinker11.2%

Concrete1.4%

Others3.6%

Raw Materials25.9%

Coal28.0%

Power12.3%

Depreciation and Amortisation

5.6%

Others13.6%

Sales & Marketing2.2%

Administrative7.9%

Finance Cost4.5%

30 May 2012 Page 5 of 16

China Shanshui Cement Group Limited

Figure 7: Shareholding structure

Source: Company data, Kim Eng Securities

China Shanshui Investment Co. Limited. Mr. Zhang Caikui (Chairman, see Appendix I) has absolute discretion to manage and control more than 50% of the shares of Shanshui Investment.

Hillhouse Capital Management Limited. It is an alternative asset manager in Asia which manages the Gaoling Fund.

T. Rowe Price Associates Incorporated. T. Rowe Price is a U.S. listed investment firm which was founded in 1937.

Figure 8: Organisational structure

Source: Company data, Kim Eng Securities

30 May 2012 Page 6 of 16

China Shanshui Cement Group Limited

Competitive strengths

Strong presence in Shandong. Shanshui is currently the largest producer of clinker and cement in Shandong province, accounting for over 30% of the market in terms of annual production volumes. It is well-positioned to ride on the rising demand and overall growth of the cement industry.

Driving out inefficient players. The Shandong Development and Reform Commission (SDRC) targets to eliminate 36.72m tonnes of obsolete production capacity in 2012. During the 11th Five-Year Plan (FYP, over 2006-2010), 75.96m tonnes of obsolete capacity was eliminated in Shandong province, which met the SDRC’s target. We expect the momentum of capacity elimination will continue during the 12th FYP, and Shanshui’s dominance will therefore strengthen as inefficient players are driven out.

Price stability from effective production control. According to the China Cement Association, cement prices in Eastern China had dropped almost 15% in 1Q12 due to weak demand owing to adverse weather. However, prices in Shandong Province (in east China) remained stable at CNY390-420/tonne this year, thanks to the effective coordination of production discipline with the regional players.

Figure 9: ASP in Shandong province (high grade cement)

Source: Digital cement, Kim Eng Securities

Price hike strategy in Liaoning. Shanshui has five clinker production lines with total capacity of 5.8m tonnes, which accounted for only about 15% of total NSP clinker capacity in Liaoning. In the coastal region of southern Liaoning, Shanshui has over 40% market share in terms of annual production volumes. Regional players in Liaoning have effectively coordinated production via supply cut and price hike strategies. Prices rose CNY20-30/tonne to CNY445-500/tonne in early May this year, which should help to stabilise prices in the Northeastern provinces.

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30 May 2012 Page 7 of 16

China Shanshui Cement Group Limited

Figure 10: ASP in Liaoning province (high grade cement)

Source: Digital cement, Kim eng securities

Key catalysts

Negative factors priced in. Cement producers in China experienced profit plunges in 1Q12, attributable to lower cement selling prices amid weak demand. Shanshui’s total cement volume sales in 1Q12 was 7.6m tonnes, a 9.5% decline compared with the same period last year. This was mainly due to delays in construction activities caused by the prolonged cold weather early this year. However, we believe these negatives should now be priced in and expect that production volumes will rebound in 2Q12 onwards.

Construction activities are picking up in Shandong. In Jan-Apr 2012, the amount of regional FAI was CNY672b, up 19% compared with the same period last year. Meanwhile, regional highway FAI rose 45% YoY to CNY6.02b, and real estate FAI rose 13% YoY to CNY106b. Construction activities are rebounding, which in turn is driving an increase in cement demand. We estimate that Shandong’s FAI growth will remain strong at approx. 20% in 2012.

Production growth remains in the Northeast. Total cement production in Liaoning and Inner Mongolia rose 20% from 101m tonnes in 2010 to 121m tonnes in 2011, thanks to strong FAI growth. In Jan-Apr 2012, FAI in Liaoning and Inner Mongolia rose 24% YoY to CNY469b, with highway FAI up 22% YoY to CNY6.4b and real estate FAI rising 15% YoY to CNY83b. We believe FAI growth will continue to be strong in 2012.

Sales volume growth in 1H12F. Shanshui has secured contracts for 27m tonnes of cement, accounting for 41.5% of its target sales volume in FY12, largely on transportation and infrastructure construction. Shanshui’s daily production reached 200k tonnes in April this year, up 5% YoY. Daily production is now 220k tonnes and total production in May is likely to jump 14% YoY to 6.8m tonnes. With cement demand recovering in Shandong and Liaoning, we estimate that Shanshui would be able to achieve 17% sales volume growth to 26m tonnes in 1H12F.

Easing cost pressure. The price of 6000kcal/kg coal has been declining gradually from the peak of CNY700/tonne in mid-2011, stabilising at CNY645/tonne this year. Easing coal prices will benefit Shanshui’s gross profit margin as it accounted for 28% of total cost in FY11.

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30 May 2012 Page 8 of 16

China Shanshui Cement Group Limited

Figure 11: Prices of 6000kcal coal (CNY/tonne)

Source: Digital Cement, Kim Eng Securities

Gross profit per tonne remains strong. Since coal prices have fallen and are likely to remain stable this year, we project Shanshui’s GP/tonne will grow 5% to CNY97/tonne in FY12F.

Figure 12: Shanshui’s ASP and GP/tonne

Source: Kim Eng Securities

Expanding sales network to Xinjiang. Xinjiang is located in the northwestern part of China. Shanshui will release 1.6m/3m tonnes of new clinker/cement capacity in the region in 2012. Xinjiang’s YTD FAI in April 2012 rose 30% YoY to CNY 54.83b, while total FAI in 2011 increased 47% YoY to CNY444.5b. We believe the expansion of production capacity is valuable for the development of Shanshui’s brand.

Prices in Shanxi recover from troughs. In the past few years, market share competition between major cement players in Shanxi led to excessive cement capacity while ASPs stayed at relative low levels. Prices have remained stable at CNY330/tonne this year. The Shanxi Development and Reform Commission plans to eliminate 33m tonnes of obsolete production capacity during the 12th FYP, which accounts for 45% of the region’s current total capacity; also, the number of cement manufacturers will be limited to below 100. Thus, we believe Shanshui will benefit from improving price stability and the strict elimination plan which would drive out inefficient players.

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30 May 2012 Page 9 of 16

China Shanshui Cement Group Limited

Risk factors

Industry growth slowdown in 2012. The PRC’s cement production has been growing rapidly in recent years. Total cement production grew at a CAGR of 8.95% over 2007-2011 to 2.09b tonnes in 2011, an 11.7% YoY growth. The annual growth rate has stayed above 10% since 2009. However, the Ministry of Industry and Information Technology (MIIT) estimates that growth will likely to slow to single digits this year.

Figure 13: Cement production in China

Source: Kim Eng Securities

Strict control over new capacity. As one of the industries subject to overcapacity controls by the PRC government, the future increase of new production capacity will be difficult.

Uncertainty in housing policies. Shanshui derives the majority of its revenues from sales in China, so changes in the PRC government’s control policies for housing development will have a direct impact on demand for its cement.

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30 May 2012 Page 10 of 16

China Shanshui Cement Group Limited

Financials

Revenue projection. Shanshui has achieved significant growth in sales and net profits over the past few years. Revenues grew from CNY4,144m in FY07 to CNY16,862m in FY11, a CAGR of 32.4%; net profit grew from CNY215m in FY07 to CNY 2,312m in FY11, a CAGR of 60.9%. We project revenues and net profit to grow at CAGR of 8.8% and 9.5% respectively in FY12-14F, while in FY12F, revenue and net profit are forecast to grow at 24.7% and 19.1% respectively, underpinned by both organic growth and M&A activities.

Healthy balance sheet. Shanshui was in a net cash position of CNY3.01b as of the end of FY11. They had announced the issue of US400m of 10.5% senior notes due 2017 in April 2012, the funds mainly used for expansion activities and to refinance a portion of their existing borrowings. We estimate Shanshui’s gearing will remain stable as it has sufficient cash and cash equivalents to offset the net increase in total debt.

Dividend outlook. Under the covenants of the debt issuance in FY11, the ability of certain subsidiaries’ to pay dividends were restricted, and as a result the payout ratio plunged from 35.1% in FY10 to 24.8% in FY11. However, Shanshui is confident that the dividend payout ratio in FY12F would recover to the 30-35% level.

Chairman’s clarification on bonus surge. FY11 administrative expenses increased from CNY689m to CNY1,095m due to a significant surge in bonus remunerations to the Chairman. Management explained that the FY11 bonuses were set at the beginning of the year based on the expected profits for the year. Shanshui achieved a 127% profit surge in FY11, which resulted in the Chairman’s huge bonus of CNY144m for the year. However, Shanshui has capped the bonus at CNY40m for FY12, in an attempt to keep the bonus at more reasonable levels.

30 May 2012 Page 11 of 16

China Shanshui Cement Group Limited

Valuation and recommendation

We use the PER methodology to value Shanshui. Shanshui’s share price has doubled from its IPO price of HKD2.80 in 2008. We believe the current valuation is attractive, considering the company’s superior geographical advantages and a gradual pick up in construction activities. We project Shanshui’s EPS in FY12F/13F/14F to be CNY0.94/1.08/1.24.

We initiate coverage on Shanshui with a BUY recommendation and target price of HKD7.81, based on 7.0x PER. Given the weak market sentiment, Shanshui’s share price has dropped from a YTD high of HKD7.58 in Feb 2012 to HKD5.04 in May 2012. Shanshui’s historical average PER is at 11.0x and the estimated FY12 PER of 6.0x is at the lower end of its historical PER band. In the previous cycle, the stock traded in the range of 4.6-10.2x PER. We apply a 7.0x FY12 PER, which implies 34% upside from the current share price level.

Figure 14: Forward PER band

Source: Kim Eng Securities

Figure 15: Valuation table on 29 May 2012

Company name Ticker Share price Market cap PER (x)

P/B(x) Payout Ratio Dividend yield

(HKD) (HKDm) FY12F FY13F (%) (%)China Shanshui 691 5.85 16,473 6.0 5.0 1.7 24.8 4.1Anhui Conch-H 914 24.60 118,736 11.8 9.9 2.4 16.0 1.7China Natl Bdg-H 3323 9.78 52,802 6.2 5.0 1.6 14.5 2.7BBMG Corp-H 2009 6.30 39,738 5.9 5.0 1.1 9.0 1.4China Res Cement 133 5.79 37,746 8.1 6.8 2.0 17.2 1.9China Natl Mat-H 1893 2.60 9,286 5.6 4.5 0.7 14.7 2.8TCC Intl Hldgs 1136 2.39 7,877 5.6 4.3 0.5 29.8 4.2West China Cement 2233 1.99 8,483 7.9 6.0 1.7 22.0 2.1China Tianrui 1252 2.69 6,458 3.9 3.5 1.0 0.0 0.0Asia Cement 743 3.45 5,369 5.0 4.1 0.5 19.7 6.0

Average: 6.6 5.4

Source: Kim Eng Securities

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30 May 2012 Page 12 of 16

China Shanshui Cement Group Limited

Appendix I: Management Team

Zhang Caikui, Chairman, Executive Director. Mr. Zhang, aged 61, is the founder of Shanshui. He is responsible for Shanshui’s overall corporate strategic planning and management. He has been the Executive Director and General Manager of Shandong Shanshui since Aug 2001. He has 43 years of experience in the cement industry. He graduated from Nankai University with a Masters degree in Business Administration in December 2005. Mr. Zhang is the father of Mr. Zhang Bin, who is the Vice Chairman of the Board, Executive Director and General Manager of the Company.

Zhang Bin, Vice Chairman, Executive Director and General Manager. Mr. Zhang, aged 33, is a vice chairman of the Board. He is in charge of the management of Shanshui’s daily production and operations as well as the company’s operations in the capital markets. He joined Shanshui in Mar 2006. Before joining Shanshui, he worked at Sinoma International Engineering Company Limited from Dec 2004 to Mar 2006. He graduated from the Business Administration Faculty of Nankai University in Sep 2008 with a Masters degree.

Dong Chengtian, Executive Director and Deputy General Manager. Mr. Dong, aged 54, has been responsible for strategic planning and management of the company’s business in Northeast Region since 2007. He has nearly 30 years of experience in the cement industry, and joined Shandong Cement Plant in 1982. He was appointed Chief Engineer and Deputy Head of Shandong Cement Plant in 1996, and served as Head of the Research and Development Department of Shandong Cement Plant in 1997. He has been Deputy General Manager of Shandong Shanshui since 2001. He graduated from Shanghai Tongji University in Jan 1982 with a Bachelor degree in Cement Technologies.

Yu Yuchuan, Executive Director, Deputy General Manager and Chief Engineer. Mr. Yu, aged 53, is responsible for production management in the Shandong region. He has nearly 30 years of experience in cement technology and engineering. He joined Shandong Cement Plant in 1983, and was appointed Chief Engineer in 1995. He has been Deputy General Manager and Chief Engineer of Shandong Shanshui since Aug 2001. He is currently Vice President of the New Type Dry-Process Cement Association (a division under the Chinese Cement Association) and a visiting professor of the University of Jinan.

Zhao Yongkui, Deputy General Manager and Chief Financial Officer. Mr. Zhao, aged 47, is responsible for overseeing the accounting and finance aspects of the company’s operations and is in charge of the company’s finance department. He has over 30 years of experience in accounting and gained his experience from working in the cement industry and managing the finances of cement companies. He joined Shandong Cement Plant as an accountant in Jul 1984. He was the Deputy Chief Accountant and Assistant to the Head of the Shandong Cement Plant in Dec 1990. In Dec 2001, he was appointed Deputy General Manager and the head of the finance department of the company. In Nov 2005, he was appointed Deputy General Manager of the company. He graduated from the Shanghai Institute of Building Materials in Jul 1984 and became a Senior Accountant in 2003.

30 May 2012 Page 13 of 16

China Shanshui Cement Group Limited

INCOME STATEMENT BALANCE SHEET FYE Dec (CNYm) 2011A 2012F 2013F 2014F

FYE Dec (CNYm) 2011A 2012F 2013F 2014F Revenue 16,862 21,031 23,996 27,112 Fixed Assets 12,787 15,282 16,632 17,865 EBITDA 4,764 5,825 6,558 7,318 Other LT Assets 4,005 4,177 4,338 4,484 Depreciation & Amortisation (17,769) (22,183) (25,277) (28,523) Cash/ST Investments 3,008 3,947 4,864 4,870 Operating Profit (EBIT) 3,856 4,674 5,278 5,907 Other Current Assets 5,281 6,041 6,806 7,677 Interest (Exp)/Inc (620) (1,921) (2,130) (2,293) Total Assets 25,082 29,447 32,639 34,897 Associates (17) - - - One-offs - - - - ST Debt 3,268 1,867 2,413 2,619 Pre-Tax Profit 3,220 2,753 3,148 3,615 Other Current Liabilities 4,813 5,868 6,494 7,327 Tax 942 1,122 1,283 1,474 LT Debt 8,197 11,300 11,493 10,496 Minority Interest 86 103 118 135 Other LT Liabilities 636 657 668 675 Net Profit 2,225 2,650 3,030 3,480 Minority Interest 458 454 450 446 Recurring Net Profit 2,225 2,650 3,030 3,480 Shareholders' Equity 7,709 9,301 11,121 13,333 Total Liabilities-Capital 25,082 29,447 32,639 34,897 Revenue Growth % 42.2 24.7 14.1 13.0 EBITDA Growth (%) 89.1 22.3 12.6 11.6 EBIT Growth (%) 123.4 21.2 12.9 11.9 Share Capital (m) 193 193 193 193 Net Profit Growth (%) 127.3 19.1 14.3 14.8 Net Debt/(Cash) (m) 8,457 9,220 9,042 8,245 Recurring Net Profit Growth (%) 127.3 19.1 14.3 14.8 Working Capital 208 2,253 2,763 2,602 Tax Rate % 29.0 29.0 29.0 29.0

CASH FLOW RATES & RATIOS

FYE Dec (CNYm) 2011A 2012F 2013F 2014F FYE Dec 2011A 2012F 2013F 2014F Profit before taxation 3,254 3,876 4,431 5,088

EBITDA Margin % 28.3 27.7 27.3 27.0 Depreciation 809 1,033 1,150 1,267 Op. Profit Margin % 22.9 22.2 22.0 21.8 Net interest receipts/(payments) (489) (631) (669) (647) Net Profit Margin % 13.7 13.1 13.1 13.3 Working capital change 2,853 5,046 5,706 6,311 ROE % 27.2 27.2 26.2 25.3 Cash tax paid (814) (970) (1,109) (1,273) ROA % 8.9 9.0 9.3 10.0 Others (incl'd exceptional items) (4,063) (4,909) (5,581) (6,355) Net Margin Ex. El % 13.7 13.1 13.1 13.3 Cash flow from operations 1,549 3,445 3,928 4,390 Dividend Cover (x) 2.9 4.0 3.1 3.1 Capex (2,275) (1,764) (2,023) (2,021) Interest Cover (x) 6.2 5.9 6.2 7.2 Disposal/(purchase) (1,115) (1,857) (1,060) (821) Asset Turnover (x) 0.5 0.5 0.5 0.5 Others 19 (59) (63) (57) Asset/Debt (x) 1.5 1.5 1.5 1.7 Cash flow from investing (3,371) (3,680) (3,147) (2,899) Debtors Turn (days) 28.0 30.5 30.8 30.9 Debt raised/(repaid) 3,987 1,702 739 (791) Creditors Turn (days) 45.9 44.7 46.5 46.7 Equity raised/(repaid) - - - - Inventory Turn (days) 47.4 53.7 57.5 61.2 Dividends (paid) (340) (528) (604) (694) Net Gearing % 55.4 53.5 49.6 46.6 Interest payments (0.4) 0.4 0.4 0.4 Debt/ EBITDA (x) 3.6 3.4 3.2 2.9 Others 40 - - - Debt/ Market Cap (x) 1.1 1.3 1.4 1.4 Cash flow from financing 3,687 1,174 135 (1,484)

Change in cash 1,866 939 917 6 PER SHARE DATA

FYE Dec (CNY) 2011A 2012F 2013F 2014F

EPS 0.79 0.94 1.08 1.24 CFPS 1.07 1.40 1.73 1.73 BVPS 2.90 3.46 4.11 4.89 SPS 5.99 7.47 8.52 9.63 EBITDA/share 1.69 2.07 2.33 2.60 DPS 0.23 0.38 0.43 0.49

Source: Company data, Kim Eng Securities

30 May 2012 Page 14 of 16

China Shanshui Cement Group Limited

RESEARCH OFFICES REGIONAL

P K BASU Regional Head, Research & Economics (65) 6432 1821 pk.basu@maybank-ke.com.sg

WONG Chew Hann, CA Regional Head of Institutional Research (603) 2297 8686 wchewh@maybank-ib.com

THAM Mun Hon Regional Strategist (852) 2268 0630 thammunhon@kimeng.com.hk

ONG Seng Yeow Regional Products & Planning (852) 2268 0644 ongsengyeow@maybank-ke.com.sg

ECONOMICS Suhaimi ILIAS Chief Economist Singapore | Malaysia (603) 2297 8682 suhaimi_ilias@maybank-ib.com

Luz LORENZO Economist Philippines | Indonesia (63) 2 849 8836 luz_lorenzo@maybank-atrke.com

Chaiyachoke SUWISUTTANGKUL Economist Thailand (662) 658 6300 chaiyachoke.s@maybank-ke.co.th

 

MALAYSIA WONG Chew Hann, CA Head of Research (603) 2297 8686 wchewh@maybank-ib.com Strategy Construction & Infrastructure Desmond CH’NG, ACA (603) 2297 8680 desmond.chng@maybank-ib.com Banking - Regional LIAW Thong Jung (603) 2297 8688 tjliaw@maybank-ib.com Oil & Gas Automotive Shipping ONG Chee Ting (603) 2297 8678 ct.ong@maybank-ib.com Plantations Mohshin AZIZ (603) 2297 8692 mohshin.aziz@maybank-ib.com Aviation Petrochem Power YIN Shao Yang, CPA (603) 2297 8916 samuel.y@maybank-ib.com Gaming – Regional Media Power WONG Wei Sum, CFA (603) 2297 8679 weisum@maybank-ib.com Property & REITs LEE Yen Ling (603) 2297 8691 lee.yl@maybank-ib.com Building Materials Manufacturing Technology

LEE Cheng Hooi Head of Retail chenghooi.lee@maybank-ib.com Technicals

HONG KONG / CHINA Edward FUNG Head of Research (852) 2268 0632 edwardfung@kimeng.com.hk Construction Ivan CHEUNG (852) 2268 0634 ivancheung@kimeng.com.hk Property Industrial Ivan LI (852) 2268 0641 ivanli@kimeng.com.hk Banking & Finance Jacqueline KO (852) 2268 0633 jacquelineko@kimeng.com.hk Consumer Staples Andy POON (852) 2268 0645 andypoon@kimeng.com.hk Telecom & equipment Samantha KWONG (852) 2268 0640 samanthakwong@kimeng.com.hk Consumer Discretionaries Alex YEUNG (852) 2268 0636 alexyeung@kimeng.com.hk Industrial Catherine CHAN (852) 2268 0631 catherinechan@kimeng.com.hk Cement Anita HWANG, CFA | Jacky WONG, CFA anitahwang@kimeng.com.hk | jackywong@kimeng.com.hk (852) 2268 0142 | (852) 2268 0107 Special Situations Quants

INDIA Jigar SHAH Head of Research (91) 22 6623 2601 jigar@kimeng.co.in Oil & Gas Automobile Cement Anubhav GUPTA (91) 22 6623 2605 anubhav@kimeng.co.in Metal & Mining Capital goods Property Haripreet BATRA (91) 226623 2606 haripreet@kimeng.co.in Software Media Ganesh RAM (91) 226623 2607 ganeshram@kimeng.co.in Telecom Contractor Darpin SHAH (91) 226623 2610 darpin@kimeng.co.in Banking & Financial Services Gagan KWATRA (91) 226623 2612 gagan@kimeng.co.in Small Cap

SINGAPORE Stephanie WONG Head of Research (65) 6432 1451 swong@maybank-ke.com.sg Strategy Small & Mid Caps Gregory YAP (65) 6432 1450 gyap@maybank-ke.com.sg Technology & Manufacturing Telcos - Regional Wilson LIEW (65) 6432 1454 wilsonliew@maybank-ke.com.sg Hotel & Resort Property & Construction James KOH (65) 6432 1431 jameskoh@maybank-ke.com.sg Logistics Resources Consumer Small/ Mid cap YEAK Chee Keong, CFA (65) 6433 5730 yeakcheekeong@maybank-ke.com.sg Healthcare Offshore & Marine Alison FOK (65) 6433 5745 alisonfok@maybank-ke.com.sg Services S-chips Bernard CHIN (65) 6433 5726 bernardchin@maybank-ke.com.sg Transport Shipping Aviation

INDONESIA Katarina SETIAWAN Head of Research (62) 21 2557 1125 ksetiawan@kimeng.co.id Consumer Strategy Telcos Lucky ARIESANDI, CFA (62) 21 2557 1127 lariesandi@kimeng.co.id Base metals Coal Oil & Gas Rahmi MARINA (62) 21 2557 1128 rmarina@kimeng.co.id Banking Multifinance Pandu ANUGRAH (62) 21 2557 1137 panugrah@kimeng.co.id Auto Heavy equipment Plantation Toll road Adi N. WICAKSONO (62) 21 2557 1130 anwicaksono@kimeng.co.id Generalist Anthony YUNUS (62) 21 2557 1134 ayunus@kimeng.co.id Cement Infrastructure Property Arwani PRANADJAYA (62) 21 2557 1129 apranadjaya@kimeng.co.id Technicals

PHILIPPINES Luz LORENZO Head of Research +63 2 849 8836 luz_lorenzo@maybank-atrke.com Strategy Laura DY-LIACCO (63) 2 849 8840 laura_dyliacco@maybank-atrke.com Utilities Conglomerates Telcos Lovell SARREAL (63) 2 849 8841 lovell_sarreal@maybank-atrke.com Consumer Media Cement Mining Kenneth NERECINA (63) 2 849 8839 kenneth_nerecina@maybank-atrke.com Conglomerates Property Ports/ Logistics Katherine TAN (63) 2 849 8843 kat_tan@maybank-atrke.com Banks Construction

THAILAND Mayuree CHOWVIKRAN Head of Research (66) 2658 6300 ext 1440 mayuree.c@maybank-ke.co.th Strategy

Maria BRENDA SANCHEZ LAPIZ Co-Head of Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 Maria.L@maybank-ke.co.th

Andrew STOTZ Strategist (66) 2658 6300 ext 1399 Andrew@maybank-ke.co.th

Suttatip PEERASUB (66) 2658 6300 ext 1430 suttatip.p@maybank-ke.co.th Media Commerce Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 sutthichai.k@maybank-ke.co.th Energy Petrochem Termporn TANTIVIVAT (66) 2658 6300 ext 1520 termporn.t@maybank-ke.co.th Property Woraphon WIROONSRI (66) 2658 6300 ext 1560 woraphon.w@maybank-ke.co.th Banking & Finance Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 jaroonpan.w@maybank-ke.co.th Transportation Small cap. Suchot THIRAWANNARAT (66) 2658 6300 ext 1550 suchot.t@maybank-ke.co.th Automotive Construction Materials Soft commodity

VIETNAM Michael KOKALARI, CFA Head of Research +84 838 38 66 47 michael.kokalari@kimeng.com.vn Strategy Nguyen Thi Ngan Tuyen +84 844 55 58 88 x 8081 tuyen.nguyen@kimeng.com.vn Food and Beverage Oil and Gas Ngo Bich Van +84 844 55 58 88 x 8084 van.ngo@kimeng.com.vn Banking Nguyen Quang Duy +84 844 55 58 88 x 8082 duy.nguyenquang@kimeng.com.vn Rubber Dang Thi Kim Thoa +84 844 55 58 88 x 8083 thoa.dang@kimeng.com.vn Consumer Nguyen Trung Hoa +84 844 55 58 88 x 8088 hoa.nguyen@kimeng.com.vn Steel Sugar Macro

30 May 2012 Page 15 of 16

China Shanshui Cement Group Limited

Definition of Ratings Kim Eng Research uses the following rating system:

BUY Total return is expected to be above 15% in the next 12 months

HOLD Total return is expected to be between -15% to +15% in the next 12 months

SELL Total return is expected to be below -15% in the next 12 months

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLOSURES AND DISCLAIMERS Disclaimer The information, tools and material presented herein are provided for informational purposes only and are not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or other financial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products or other financial instruments. 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30 May 2012 Page 16 of 16

China Shanshui Cement Group Limited

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