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A reality check in Guangdong. We visited Tapai Group and TCCI in Meizhou and

Yingde on 11-12 October. Demand was stronger-than-expected – cement trucks and

carriers queued up in Yingde during our visit. Cement sales remained stable during the

national holidays, which is unusual, and then picked up quickly thereafter. Inventory level

fell rapidly to 50% from 70% (Guangdong/Guangxi) in one month. Producers in Yingde /

Pearl River Delta have no inventory, and thus asking prices have been hiked aggressively.

We underestimated the production disruption. Major cement plants in Yingde can only

operate 50-75% of their facilities, while some remain suspended six weeks after the

explosion accident on 27 August. The stricter controls on explosives are unlikely to loosen

in the coming few months. As a result, this reduced 8-10% of cement supply in

Guangdong during this peak season. Meanwhile, new capacity will be delayed (some still

need NDRC approval). There is about 10-12mt of cement capacity currently under

construction, but we think this will mostly come through in 2H13. This should be offset

by old capacity elimination and demand growth in 2013.

Lift our earnings by 4% in 2012 and 12% in 2013. CR Cement’s cement and clinker

ASPs in Guangdong have increased RMB75-100/t since September. Guangxi and Fujian

have also seen RMB20-40/t price increases. We expect another 2 price hikes by end-2012,

as the peak season in Southern China will last until end January 2013. We estimate GP/t

to recover to HKD70-80 in October, reaching more than HKD100/t in 4Q12. We estimate

net profit will recover strongly by 41% y/y to HKD2,745m in 2013. CRC is our top pick on greatest earnings visibility. Despite the recent share price rally,

CR Cement still dropped 21% ytd, underperforming cement peers by 23% due to

overcapacity concerns in Guangdong. At HKD4.59, the stock trades at 10.9x PE. Its EV/t

of USD80.6 is one standard deviation below its historical average. We think the current

valuation is not fully pricing in the improving profitability in Southern China. We lift our

PE-based target price to HKD5.6 from HKD4.2 and upgrade to OW(V). Catalyst:

Continuous ASP hike in 4Q12.

Overweight (V) Target price (HKD) 5.60 Share price (HKD) 4.59 Forecast dividend yield (%) 1.0 Potential return (%) 23.5

Note: Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield

Dec 2011 a 2012 e 2013 e

HSBC EPS 0.64 0.30 0.42 HSBC PE 7.2 15.4 10.9

Performance 1M 3M 12M

Absolute (%) 6.0 4.6 -19.0 Relative^ (%) 0.4 -7.1 -25.2

Note: (V) = volatile (please see disclosure appendix)

18 October 2012

Elaine Lam* Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2822 4398 [email protected]

View HSBC Global Research at: http://www.research.hsbc.com

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Issuer of report:

The Hongkong and Shanghai Banking Corporation Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Industrials Construction Materials Equity – China

Company report

China Resources Cement (1313 HK)

Upgrade to OW(V): More to go

CRC offers the strongest ASP outlook thanks to pent-up demand and continuous supply disruption in Guangdong

New capacity added is likely delayed to 2H13; supply dynamics positive for ASP over the next six months

Raise our earnings by 12% in 2013; lift TP to HKD5.6 from HKD4.2 and upgrade to OW(V) from N(V)

Index^ HSCEIIndex level 10,375RIC 1313.HKBloomberg 1313 HK

Source: HSBC

Enterprise value (HKDm) 49271Free float (%) 27Market cap (USDm) 3,860Market cap (HKDm) 29,923

Source: HSBC

http://www.research.hsbc.com/

2

China Resources Cement (1313 HK) Construction Materials 18 October 2012

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Financials & valuation Financial statements

Year to 12/2011a 12/2012e 12/2013e 12/2014e

Profit & loss summary (HKDm)

Revenue 23,240 26,437 30,426 34,627EBITDA 6,019 4,665 5,884 6,936Depreciation & amortisation -1,348 -1,833 -1,946 -2,105Operating profit/EBIT 4,671 2,832 3,938 4,831Net interest -597 -809 -919 -970PBT 4,906 2,488 3,539 4,433HSBC PBT 4,906 2,488 3,539 4,433Taxation -562 -497 -723 -916Net profit 4,179 1,944 2,745 3,420HSBC net profit 4,179 1,944 2,745 3,420

Cash flow summary (HKDm)

Cash flow from operations 4,455 1,244 4,154 5,161Capex 11,861 6,500 3,500 3,500Cash flow from investment -12,769 -7,392 -3,510 -3,531Dividends 717 292 412 513Change in net debt 8,532 5,559 -232 -1,117FCF equity 16,722 9,858 7,742 8,550

Balance sheet summary (HKDm)

Intangible fixed assets 1,708 1,697 1,686 1,673Tangible fixed assets 33,664 38,372 39,967 41,405Current assets 10,815 10,387 13,659 17,902Cash & others 3,738 -884 748 3,265Total assets 50,458 54,954 60,063 66,001Operating liabilities 9,007 10,867 12,171 13,706Gross debt 21,375 22,312 23,712 25,112Net debt 17,637 23,197 22,964 21,847Shareholders funds 19,299 20,952 23,285 26,191Invested capital 33,442 40,473 42,392 44,010

Ratio, growth and per share analysis

Year to 12/2011a 12/2012e 12/2013e 12/2014e

Y-o-y % change

Revenue 64.3 13.8 15.1 13.8EBITDA 90.6 -22.5 26.1 17.9Operating profit 106.5 -39.4 39.0 22.7PBT 119.9 -49.3 42.3 25.3HSBC EPS 104.8 -53.5 41.2 24.6

Ratios (%)

Revenue/IC (x) 0.8 0.7 0.7 0.8ROIC 14.7 6.2 7.6 8.9ROE 21.7 9.3 11.8 13.1ROA 11.5 5.1 6.2 6.8EBITDA margin 25.9 17.6 19.3 20.0Operating profit margin 20.1 10.7 12.9 14.0EBITDA/net interest (x) 10.1 5.8 6.4 7.2Net debt/equity 91.4 110.7 98.6 80.9Net debt/EBITDA (x) 2.9 5.0 3.9 3.2CF from operations/net debt 25.3 5.4 18.1 23.6

Per share data (HKD)

EPS reported (fully diluted) 0.64 0.30 0.42 0.52HSBC EPS (fully diluted) 0.64 0.30 0.42 0.52DPS 0.11 0.04 0.06 0.08NAV 2.96 3.21 3.57 4.02

Key forecast drivers

Year to 12/2011a 12/2012e 12/2013e 12/2014e

Cement Capacity (mt) 69 73 78 87Total sales volume (mt) 51 65 73 82y-o-y growth (%) 55 29 11 13Blended ASP (HKD/t) 361 329 343 341y-o-y growth (%) 10 -9 4 -1GP/t (HKD) 119 71 82 85

Valuation data

Year to 12/2011a 12/2012e 12/2013e 12/2014e

EV/sales 1.9 1.9 1.6 1.4EV/EBITDA 7.3 10.5 8.3 6.8EV/IC 1.3 1.2 1.1 1.1PE* 7.1 15.3 10.9 8.7P/NAV 1.5 1.4 1.3 1.1FCF yield (%) 64.0 38.0 30.1 33.4Dividend yield (%) 2.4 1.0 1.4 1.7

Note: * = Based on HSBC EPS (fully diluted)

Price relative

23456789

10

2010 2011 2012 2013

2345678910

China Resources Cement Rel to HANG SENG CHINA ENTERPRISES INDEX

Source: HSBC Note: price at close of 15 Oct 2012

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A reality check

We visited Tapai Group (002233 CH, Not rated)

and TCCI (1136 HK, HKD2.03, TP HKD1.5,

UW(V)) in Meizhou (梅州) and Yingde (英德) on

11-12 October as an on-the-ground check to the

demand/supply dynamics in Guangdong, which is

the most critical market in Southern China, as

well as an important sales contributor to CR

Cement (Guangdong/Guangxi accounted for 70%

of sales in 1H12).

Stronger demand, less supply

We found demand was much stronger than our

and market expectations – daily sales volume did

not fall much during the national holidays (as

what we seen in the past) and then recovered

quickly afterward. Inventory fell rapidly to only

50% from 70% a month ago, in Guangdong /

Guangxi. We saw cement trucks and bulk cement

carriers queued up at TCC (Yingde) during our

visit. Most producers in Yingde or the Pearl River

Delta regions have cleared clinker/cement

inventories after the holidays in October.

However, the impact from the explosion accident

in Yingde on 27 August was larger-than-expected.

Yingde is the largest cement production base in

Guangdong and we estimate it to account for 20-

25% of total cement supply in the province.

Investment summary

We should see the strongest ASP hikes in Southern China thanks

to pent-up demand and supply disruptions in Guangdong

Overcapacity concerns may be overdone; new capacity could be

delayed to 2H13 as per our on-the-ground checks in Guangdong

CR Cement offers the greatest earnings upside in 2013e; upgrade

to OW(V) from N(V) with new TP of HKD5.6 from HKD4.2

TCC (Yingde) : Cement trucks queue up at the entrance of cement plant

TCC (Yingde): Bulk cement carriers line up at berths in Beijiang (北江)

Source: HSBC Source: HSBC

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Currently, three clinker production lines (3x

5,000t/d) owned by TCCI remain suspended,

while the other eight lines under Anhui Conch and

TCCI (4x 5,000t/d and 4x 6,000/t ) can only

maintain 50% and 75% of normal operation

because of stricter regulations on explosives. Our

industry checks suggested that it could takes at

least another three months for all cement

producers to resume operations entirely. During

the period, we estimate an 8-10% reduction in

cement supply in Guangdong.

Delay in new capacity in Guangdong

Many new lines under construction, including

Tapai Group’s 2x 10,000t/d in Eastern

Guangdong, have not approved by the NDRC

(central level) and no concrete timetable is

available for commencing operations. Our

channel checks suggested that 5-6 clinker

production lines, with a total of 10-12mt cement

capacity, could be released by 2013, most of

which could complete in 2H13. In our view, this

new capacity could be offset by the 4-6mt of

vertical kiln capacity elimination in 2012e, as well

as 4-5% demand growth in 2013e. ASP hike in 4Q12

Cement retail prices have gone up by RMB95 and

RMB50 in Guangdong/Guangxi since early

September. We believe the uptrend will continue

given the rapid falling inventory in most regions.

Cement producers in Yingde lifted ASP

aggressively by RMB40-50/t in mid-October,

compared to only RMB10-20/t in Eastern China.

The peak season in Southern China should last

until late January next year; therefore we expect

another two price hikes by end-2012. That said,

we should see the greatest ASP and earnings

upside for Southern China players.

CR Cement is our top pick

We like CR Cement’s earnings visibility and

improved capital structure after the recent

USD400m bond issuance. We lift our earnings

estimates by 4% and 12% in 2012 and 2013 to

reflect higher ASPs in 4Q12. We estimate

earnings to grow 41% y/y to HKD2,745m, on the

back of 11% and 4% volume and ASP growth in

2013, respectively.

CR Cement’s cement and clinker ex-factory

prices have increased RMB75/t and RMB100/t in

Guangdong since early September. Other regions

such as Guangxi and Fujian also witnessed

RMB20-40/t price increases over the period. We

estimate ASP to improve HKD35/t m/m, and GP/t

to go back to HKD70-80/t in October (from the

low of HKD40-45/t in July-August).

Originally, management planned to raise ASP by

10% to HKD350-360/t by end-2012. We think

this can be exceeded given the better-than-

expected supply/demand dynamics in the coming

months. We expect another two price hikes

(RMB30/t each), lifting ASP to HKD400 by end-

2012. That said, we estimate GP/t will go up

further to HKD105/t in 4Q12.

Difference from consensus

Our earnings estimates are 10% and 5% below

consensus in 2012-13, respectively. In our view,

consensus is not a good benchmark for CR

Cement as the range of estimates is huge (for

instance, consensus earnings estimates range from

HKD1.8-3.2bn in 2013).

Valuation and target price

At HKD4.59, the stock trades at 10.9x PE, a 14%

discount to Anhui Conch. Its EV/t of USD80.6 is

one standard deviation below the historical

average. We think the current valuation is not

fully pricing in the improving profitability in

Southern China.

In our view, the market’s concern on overcapacity

in Guangdong is overdone and we see the stock

rerating given the stronger ASP outlook and

improved capital structure after the recent

bond issuance.

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We maintain our PE pricing methodology, but lift

our target to HKD5.6 (from HKD4.2) with 23.5%

potential return. This reflects our earnings

upgrades, higher PE target multiple on stronger

ASP outlook and improved capacity structure.

We lift our target PE multiple from 11.1x to

13.1x, the same as Anhui Conch’s 10-year

historical average. We believe a 10-year time

horizon is enough to capture the different

investment cycle and the historical average can

serve as a mid-cycle PE of cement stock in China.

Potential return equals the percentage difference

between the current share price and the target

price, plus the forecast dividend yield.

Catalysts

ASP hikes in Guangdong/Guangxi in 4Q12

Accelerating property construction in

Southern China

Softening coal cost in China

Faster capacity expansion through M&A

Risks

Single-market risk, as 70% of sales are from

Guangdong/Guangxi

Poor supply discipline in Southern China

Larger-than-expected new capacity added in

Guangdong

Slowing shut-down of vertical kilns in

Southern China

Increasing contribution from Shanxi, which

would dilute per-tonne profit

TCCI (1136 HK, UW(V), HKD2.03, TP: HKD1.5)

Our PE-based target price is based on Anhui

Conch’s (914 HK, N(V), HKD25.55, TP:

HKD26.4) average PE (13.1x) over the past 10

years with a discount of 45%. This is in line with

the historical trading discount over the past 12

months. Therefore, we set our target PE at 7.2x.

Applying this to the 12-month forward EPS, we

derive a target price of HKD1.5.

Upside risks: ASP to rebound in Southern China

(TCCI is a top-three player in Guangdong /

Guangxi and these regions could account for 46%

of total capacity by end-2012e); faster

consolidation in Southwest China (we expect at

least 12-18 months for markets to consolidate or

major players to start to gain pricing power, given

the very fragmented structure and serious

overcapacity problem).

CR Cement: Share price performance relative to HSCEI

-20%

0%

20%

40%

60%

80%

100%

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

Conch

CNBM

CR Cement

Shanshui

2.7%

-5.5%

-21.1%

-5.5%

-19.5%

Out-performance

Under-performance

Relative performance vs

HSCEI (%)

HSCEI

Since 2011

Source: Thomson Reuters Datastream, HSBC estimates

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Southern China: Incremental demand from newly approved project is yet to filter through, stronger-than-expected cement sales is likely due to pent-up demand in July/Aug and rural consumption

11.0%

1.0%

17%

12%

3%

-3%

-0.1%

-1.7% -2.0%

6.3% 6.7% 8.8% 6.5%

-20%

-10%

0%

10%

20%

30%

40%

Jul-11 Sep-11 Nov -11 J-F 12 Apr-12 Jun-12 Aug-12

Guangdong/Guangx i Central China Eastern ChinaY/Y Clinker production

Clinker production in Guangdong/Guangx i w as disappointing in Jul/Aug

and w e attribute this to the delay ed in construction under heav y rainfall

Source: China Cement Association, HSBC

Southern China: We expect another two price hikes in Guangdong/Guangxi by end-2012, bringing cement price to the level in early 2012

250

300

350

400

450

500

1Q11 2Q11 3Q11 4Q11 Jan-12 Feb-12 Mar-12 Apr-12 May -

12

Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Current

Guangdong/Guangx i

Central China

Eastern China

RMB/t Cement retail price (with VAT) Jan Current Diff

380 335 -45 (-12%)

405 340 -65 (-16%)

417 325 -92 (-22%)

Source: China Cement Association, HSBC

CR Cement (1313 HK): Gaining market share with higher ASP after the explosion in Yingde, Guangdong

250

270

290

310

330

350

370

390

1Q12 2Q12 3Q12e 4Q12e 1Q13e 2Q13e 3Q13e 4Q13e

40

50

60

70

80

90

100

110ASP GP/t

HKD/t CR Cement (1313 HK)

ASP has risen HKD35 since mid-Sep; w e

ex pect another 2 price hikes in Nov /Dec,

lifting ASP by HKD75/t, and GP/t w ould

reach HKD105/t in 4Q12

Source: HSBC estimates

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Key findings from our Guangdong trip

Cement sales did well during and after the

national holidays in most regions. CR

Cement’s daily sales volume dipped to 21k

tonnes then recovered quickly to 23-24k

tonnes; Tapai and TCC (Yingde) did indicate

any meaningful decline in cement sales

during the holidays.

Cement producers’ capacity is not meeting

daily sales; therefore, inventory levels have

fallen since late September. Currently, there is

no inventory left in Yingde and the Pearl

River Delta region; Tapai and CR Cement’s

inventory are in the range of 40-50%.

TCC (Yingde)’s ASP has gone up from a low

of RMB200/t to RMB330/t since early

September; management expects pricing to go

up further by year-end. We estimate its GP/t

to improve substantially from RMB20/t to

RMB70-80/t over the period.

The impact from the explosion in Yingde

Dragon Mountain is larger than we thought. As

of 12 October, Yingde Dragon Mountain (3x

5000t/d) was still suspended as it was running

out of limestone; TCC (Yingde) (4x 6,000t/d)

and Yingde Conch (4x 5,000t/d) can only

maintain 75% and 50% of operations under the

stricter regulations on explosives in the region.

Other smaller cement producers in the region

face a similar situation. This reduced 8-10% of

cement supply in Guangdong.

New capacity under construction (including

Tapie’s 2x 10,000t/d in Eastern Guangdong)

may be delayed on licensing issues, as those

not approved by the NDRC (central level)

cannot start the main construction. We

estimate 5-6 clinker production lines (with

10-12mt of cement capacity) will commence

operations next year, largely in 2H13. This

new capacity should be offset by the 4-6mt of

vertical kiln capacity elimination by 2012e, as

well as 4-5% demand growth in Guangdong

in 2013e.

Guangdong is the first province to implement

a lower nitrogen emission standard of 550mg

(from 800mg/m3) for cement producers in

China. Most of them have to install de-

nitrification equipment by end-2012; this

incurs an additional investment of RMB3m

for a 5,000t/d clinker production line, and

also RMB3-5/t of operating cost among

producers (some even as high as RMB10/t).

On-the-ground checks

We visited Tapai Group and TCCI in Meizhou (梅州) and Yingde

(英德) in Eastern/Northern Guangdong on 11-12 October

Key takeaways are demand is stronger-than-expected while

supply disruptions in Yingde could last another three months

ASP will continue to go up before peak season ends in early 2013

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Guangdong cement trip 11-12 October 2012 1. Tapai’s 1x 5,000t/d clinker production line Day 1: Jaoling of Meizhou City, Guangdong (梅州蕉岭县)

This is the first 5,000t/d clinker production line in Guangdong built by Tapai Group (002233 CH) back in 2002

Tapai plans to construct 2x10,000t/d clinker lines close to this old plant, but the project is still pending NDRC (central level) approval

The new project has started construction but the main part cannot kick-off before approval; no timetable given as to when the project can complete and commence operations

Management admitted the difficulty in getting approval and we believe this is not an exceptional case in Guangdong

We believe many new lines under construction face a similar situation and therefore new capacity added in 2013 is likely to be much less than thought

Source: HSBC

2. A vertical kiln clinker production line owned by YouKen Group (油坑集团), a local cement operator

Day 1: Jaoling of Meizhou City, Guangdong (梅州蕉岭县)

There is 7-8mt of vertical kiln cement capacity in Eastern Guangdong (粤东) which have to close down during the 12th Five-Year Period (by 2015)

Tapai’s 2x 10,000t/d clinker production lines will replace the local vertical kiln, not targeting the Pearl River Delta or Western Guangdong which are the key markets for CR Cement

The elimination of old capacity has been slightly behind schedule over the past few years, but many vertical kiln factories are already shut due to the inefficient and costly operation

Source: HSBC

3. TCC (Yingde): 4x 6,000t/d clinker production lines Day 2: Yingde City, Guangdong (英德市)

The first two phases (4x 6,000t/d or 10mt annual cement capacity) commenced operation in 2006-07; TCCI reserved the land and limestone resources for extension (3-4th phases) but is unlikely to get approval in foreseeable future

Impact from the explosive accident (27 Aug) in Yingde Dragon Mountain (英德龙山), which is 100% owned by TCCI but operated by Conch, is larger than we thought

As of 12 Oct, Yingde Dragon Mountain (3x 5000t/d) was still suspended as running out of limestone; TCC (Yingde) and Yingde Conch can only maintain 75% and 50% of operations under the stricter regulations on explosives in the region

Other cement producers in the region face a similar problem; we estimate the cement daily supply is reduced 8-10% in Guangdong

Source: HSBC

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Guangdong cement trip 11-12 October 2012 (cont’d) 4. De-nitrification facilities in TCC (Yingde) Day 2: Yingde City, Guangdong (英德市)

Guangdong is the first province to implement a lower nitrogen

emission standard of 550mg (from 800mg/m3) for the cement industry in China

Cement plants have to install de-nitrification equipment in most regions by end-2012; this incurs an additional investment of RMB3m for a 5,000t/d clinker production line, and also RMB3-5/t of operating cost among producers (some even as high as RMB10/t)

Source: HSBC

5. Bulk cement carriers line up at berths in Beijiang (北江) Day 2: Yingde City, Guangdong (英德市)

Beijiang is the main waterway for transport from Yingde to

Pearl River Delta Region Transportation cost per tonne of cement is RMB20/t for cement,

similar to CR Cement’s from Fengkai (封开) via Xijiang (西江)

Source: HSBC

6. Cement trucks queue up at the entrance of cement plant Day 2: Yingde City, Guangdong (英德市)

Cement sales did not fall much during the national holidays and

then picked up quickly afterward; management said stronger than expected demand came from accelerating infrastructure construction and rural consumption

Regulation of explosives in Yingde remains very strict and cement producers’ inventory has already cleared

TCC (Yingde) plans for another price hike of RMB50/t in Pearl River Delta Region in mid Oct; its ASP has gone up from a low of RMB200/t to RMB330/t recently (+RMB130/t) since early Sept; management expects pricing to go up further by the end of this year

We estimate its GP/t to improve substantially from RMB20/t to RMB70-80/t over the period

Source: HSBC

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Our key assumptions

Cement capacity to grow 6% and 7% to

77.7m tonnes by 2013. This does not include

any potential M&A.

Sales volume to grow 11% y/y to 72.6mt in

2013, the blended utilization rate (clinker and

cement) to reach 93% in 2013.

Another 2-3 price hikes (RMB30/t each) in

the coming months, lifting ASP to HKD405

by end-2012. We estimate a 4% ASP growth

in 2013 because of the high base set in 4Q12.

GP/t to improve substantially from HKD46/t

(3Q12) to HKD105/t in 4Q12. GP/t to then

remain stable at HKD82/t in 2013.

Earnings revisions

We lift our earnings estimates by 4% in 2012 and 12% in 2013 to

reflect higher ASP in 4Q12

We estimate earnings to grow 41% y/y to HKD2,745m, on the

back of 11% and 4% volume and ASP growth in 2013

CR Cement: H/H breakdown

Year-end Dec (HKDm) 1H11 2H11 1H12 2H12e 1H13e 2H13e

Total sales volume ('000t) 21,676 28,942 27,327 37,969 30,506 42,127 H/H 8.5% 33.5% -5.6% 38.9% -19.7% 38.1% Y/Y 70.0% 44.8% 26.1% 31.2% 11.6% 11.0% as % of total 42.8% 57.2% 41.9% 58.1% 42.0% 58.0% Blended ASP 364 359 324 333 350 338 H/H 4.1% -1.3% -9.9% 2.9% 5.2% -3.5% Y/Y 21.7% 2.8% -11.1% -7.3% 8.2% 1.4% Clinker & cement sales 7,894 10,403 8,848 12,645 10,684 14,232 H/H 13.0% 31.8% -14.9% 42.9% -15.5% 33.2% Y/Y 106.9% 48.9% 12.1% 21.6% 20.7% 12.5% as % of total 78.5% 78.9% 80.2% 82.1% 42.9% 57.1% Turnover 10,052 13,188 11,034 15,403 13,101 17,324 H/H 11.1% 31.2% -16.3% 39.6% -14.9% 32.2% Y/Y 97.3% 45.8% 9.8% 16.8% 18.7% 12.5% - as a % of full yr 43.3% 56.7% 41.7% 58.3% 43.1% 56.9% Net profit 2,045 2,134 635 1,309 1,022 1,723 H/H 42.7% 4.3% -70.2% 106.1% -22.0% 68.7% Y/Y 236.8% 48.8% -68.9% -38.6% 60.8% 31.6% - as a % of full yr 48.9% 51.1% 32.7% 67.3% 37.2% 62.8% GP/t (HKD) 130.8 110.7 63.7 76.3 80.2 84.0 SG&A as % of Sales 10.6% 11.3% 11.9% 11.3% 11.2% 11.3% SG&A/t 48.9 51.6 47.9 45.7 47.9 46.5 Effective tax Rate 8.3% 14.3% 20.0% 20.0% 25.5% 17.0% Net margin 20.3% 16.2% 5.8% 8.5% 7.8% 9.9%

Source: Company data, HSBC estimates

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CR Cement: Earnings revisions

Yr end Dec (HKDm) Actual _________________ New ________________ ________________ Change _______________ 2011 2012e 2013e 2014e 2012e 2013e 2014e

Cement capacity ('000t) 68,744 72,744 77,744 86,744 0.0% 0.0% 0.0% Y/Y 43.7% 5.8% 6.9% 11.6% Total sales vol ('000 tonnes) 50,618 65,296 72,633 82,296 3.4% 0.6% 0.2% Y/Y 54.6% 29.0% 11.2% 13.3% Blended ASP 361.5 329.2 343.0 341.2 -0.2% 3.2% 4.4% Y/Y 9.5% -8.9% 4.2% -0.5% Clinker & cement sales 18,297 21,493 24,915 28,079 3.3% 3.8% 4.6% Y/Y 69.3% 17.5% 15.9% 12.7% Concrete sales 4,943 4,943 5,510 6,548 0.0% -7.2% -8.6% Y/Y 48.1% 0.0% 11.5% 18.8% Turnover 23,240 26,437 30,426 34,627 2.6% 1.6% 1.8% Y/Y 64.3% 13.8% 15.1% 13.8% Gr profit 7,224 5,876 7,360 8,613 1.8% 6.1% 8.1% Y/Y 61.9% -18.7% 25.3% 17.0% SG&A -2,553 -3,043 -3,422 -3,782 0.6% 1.1% 1.2% Y/Y 16.0% 19.2% 12.4% 10.5% EBIT 4,671 2,832 3,938 4,831 3.1% 10.9% 14.1% Y/Y 106.5% -39.4% 39.0% 22.7% Net finance cost -597 -809 -919 -970 -4.3% -6.3% -6.7% Y/Y -14.3% -30.5% -23.9% -20.1% Share of results of associates 134 130 140 140 -14.5% -20.8% -24.6% Y/Y -71597.9% -3.3% 7.8% 0.0% Share of profit from JCE 155 97 113 130 11.1% -11.0% -4.9% Y/Y -37.3% 16.7% 14.3% Net profit 4,179 1,944 2,745 3,420 4.4% 11.7% 15.1% Y/Y 104.8% -53.5% 41.2% 24.6% Against cons -10.0% -4.8% GP/t (HKD) 119.3 71.1 82.4 84.8 -1.1% 9.1% 12.7% Blended gr margin 31.1% 22.2% 24.2% 24.9% -0.2%-pt 1.0%-pt 1.4%-pt SG&A as % of sales 11.0% 11.5% 11.2% 10.9% -0.2%-pt -0.1%-pt -0.1%-pt EBIT margin 20.1% 10.7% 12.9% 14.0% 0.0%-pt 1.1%-pt 1.5%-pt Net margin 18.0% 7.4% 9.0% 9.9% 0.1%-pt 0.8%-pt 1.1%-pt Operating cash flow 4,455 1,244 4,154 5,161 10.2% 4.5% 9.7% Capex -11,861 -6,500 -3,500 -3,500 0.0% 0.0% 0.0% Net gearing 91.6% 110.7% 98.6% 83.4% -0.9%-pt -2.3%-pt -4.5%-pt Cash cycle (96) (40) (40) (40) 0 0 0 ROE 21.7% 9.3% 11.8% 13.1% 0.4%-pt 1.1%-pt 1.4%-pt

Source: Company data, HSBC estimates

CR Cement: Sales volume in 2011-13e CR Cement: Sales volume breakdown by region

0

5,000

10,000

15,000

20,000

25,000

30,000

2011 2012e 2013e

Guangdong Guanx i FujianHainan Shanx i Yunan

Sales vol ('000t)

Guangdong

25.3%

Fujian

13.1%

Hainan

6.1%

Shanx i

14.8%

Yunan

6.1%

Guanx i

34.5%

Sales volume (2013)

Source: Company data, HSBC estimates Source: HSBC estimates

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PE-based target price

We maintain our PE-based pricing methodology,

but lift our target PE multiple from 11.1x to

13.1x, the same as Anhui Conch’s 10-year

historical average. We believe a 10-year time

horizon is enough to capture the different

investment cycle and the historical average can

serve as a mid-cycle PE of cement stocks in

China. Coupled with a 12% earnings upgrade in

2013 EPS, we raise our target price from HKD4.2

to HKD5.6.

1) Stronger ASP outlook in Southern China

Cement retail prices increased RMB95/t and

RMB50/t in Guangdong/Guangxi since early

September compared to RMB30/t in Eastern

China. We attribute this to stronger seasonality in

Southern China due to pent-up demand in 3Q12,

as well as the supply disruption in Yingde, the

largest clinker production base in Guangdong.

Currently, the cement price in Guangdong /

Guangxi is only RMB45/t (12%) lower than

earlier this year, while Eastern China’s is still

RMB92/t below (22%). In our view, the high ASP

in Southern China will sustain through 2013, as

peak season lasts until January and new capacity

coming through is likely delayed to 2013. 2) Improved capital structure

CR Cement issued a five-year USD400m senior

bond to refinance its existing short-term bank

borrowing in China. We estimate HKD60m interest

cost savings, given the 2.125% coupon rate versus

about 6% for short-term borrowing in China. CR

Cement’s short-term debt percentage will also lower

from 50% to only 36% by end-2013.

Upgrade to OW(V)

Under our research model, for stocks with a

volatility indicator, the Neutral band is 10ppts

above and below the hurdle rate for China stocks

of 10%. Our target price of HKD5.6 implies a

potential return of 23.5% (including a forecast

dividend yield of 1.0%); therefore, we are upgrade

the stock from N(V) to OW(V). Potential return

equals the percentage difference between the

current share price and the target price, including

the forecast dividend yield when indicated.

Target price

CR Cement becomes our top pick in China cement on its earnings

visibility

We maintain our PE pricing methodology, but lift our target to

HKD5.6 (from HKD4.2) for 23.5% potential return

This reflects our earnings upgrade, higher PE target multiple on

stronger ASP outlook and improved capacity structure

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CR Cement – Key valuation charts CR Cement (1313 HK) - PE band chart

3

5

7

9

11

13

15

17

19

21

23

Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

Fw d PEFwd PE (x)

Av e + 2 x SD

Av e + 1 x SD

Av e

Av e - 1 x SD

Av e - 2 x SD

Max Min Avg Current

21.9x 6.7x 12.7x 11.6x

Source: Datastream, HSBC estimates

CR Cement (1313 HK) - EV/tonne

60

70

80

90

100

110

120

130

140

Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov -11 Apr-12 Sep-12

Since listing Max Min Average Current

EV/tonne (USD) 132 74 100 89EV/t (USD/Cement capacity )

+ 2 s.d.

+1 s.d.

-1 s.d.

-2 s.d.


2012e EV/tonne against 2013 EPS y/y growth

HK-listed peers

PRC-listed peersCNBM CR Cement

ConchAC ChinaShanshui

TCCI

Sinoma

All cement peers

Indian peers Global peers

0

50

100

150

200

250

0 10 20 30 40 50 60 70

2012e EV/t (USD)

2013e EPS y/y (%)


Ch

ina R

esou

rces Cem

ent (1313 H

K)

Co

nstru

ction

Materials

18 Octo

ber 2012

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c

HSBC China Cement valuation comparison

Company Bloomberg ticker

Mkt cap (USDm)

Rating Price (Local)

Targetprice

Pot'l return*

2011 -13e EPS

CAGR (%)

_ EPS y/y __ _____________________ 2012e _____________________ ______________________ 2013e ______________________2012e 2013e PE (x) PB (x) GP/t

(RMB)EV/t (USD) N gearing

(%) RoE (%) PE (x) PB (x) GP/t

(RMB)EV/t (USD) N gearing

(%) RoE (%)

Anhui Conch 914 HK 14,432 N(V) 25.55 26.40 4.5% -13.4 -43.4 32.4 16.8 2.2 64.0 79.7 38.1 13.1 12.7 1.9 73.3 75.9 32.9 15.2 CNBM 3323 HK 6,011 UW (V) 8.63 6.80 -19.9% -12.6 -38.0 23.1 7.6 1.2 58.4 71.4 351.1 16.1 6.2 1.0 58.8 75.0 343.9 16.9 CRC 1313 HK 3,861 OW(V) 4.59 5.60 22.9% -19.0 -53.5 41.2 15.3 1.4 57.8 86.8 110.7 9.3 10.9 1.3 67.0 80.6 98.6 11.8 Shanshui Cement 691 HK 1,936 OW (V) 5.33 5.40 3.3% -8.6 -26.5 13.6 7.5 1.3 71.9 37.0 122.1 18.0 6.6 1.1 68.0 35.0 109.3 17.4 Sinoma 1893 HK 981 N(V) 2.21 2.00 -8.4% -38.6 -66.4 12.1 13.1 0.6 54.5 56.4 277.3 4.4 11.7 0.5 55.0 55.4 313.5 4.7 TCCI 1136 HK 863 UW (V) 2.03 1.50 -24.5% -31.1 -59.5 17.3 10.8 0.5 33.5 31.7 68.3 4.6 9.2 0.5 33.2 30.1 60.7 5.1 AC China 743 HK 677 N(V) 3.37 3.20 -2.0% -27.8 -61.9 36.9 8.4 0.5 55.3 82.2 63.5 5.8 6.1 0.5 59.2 64.7 65.0 7.4 BBMG 2009 HK 3,728 NR 5.91 N/a N/a 8.9 3.7 14.3 5.7 0.9 N/a N/a N/a 14.2 5.0 0.8 N/a N/a N/a 14.9 West China Cement 2233 HK 763 NR 1.30 N/a N/a 4.7 -29.0 54.5 9.6 1.0 N/a N/a N/a 12.3 6.2 0.9 N/a N/a N/a 15.7 PRC peers (HK-listed) (9 companies) -12.2 -38.5 28.2 12.6 1.6 61.1 73.9 128.6 13.0 9.7 1.4 66.9 71.2 123.0 14.5 Conch A 600585 CH 14,432 N/a 15.91 N/a N/a -15.5 -44.7 28.9 13.1 1.7 N/a 83.4 N/a 13.7 10.2 1.5 N/a 81.5 N/a 15.2 Tangshan Jidong Cmt.'A'

000401 CH 2,508 N/a 11.67 N/a N/a -10.9 -50.6 60.7 19.1 1.3 N/a 57.6 N/a 5.1 11.9 1.2 N/a 58.1 N/a 8.2

Jilin Tatai Cement 600881 CH 1,414 N/a 4.68 N/a N/a 18.3 7.5 30.2 10.9 N/a N/a N/a N/a 11.5 8.4 N/a N/a N/a N/a NA Huaxin Cement 'B' 600801 CH 1,598 N/a 1.35 N/a N/a 6.3 -11.3 27.5 8.3 N/a N/a N/a N/a NA 6.5 N/a N/a N/a N/a NA Gansu Qilianshan Cmt 600720 CH 798 N/a 10.54 N/a N/a -1.4 -24.3 28.3 19.9 1.7 N/a N/a N/a 5.8 15.5 1.4 N/a N/a N/a 8.5 Xinjiang Tianshan Cmt 000877 CH 1,211 N/a 8.63 N/a N/a -26.6 -44.9 -2.2 9.7 1.1 N/a N/a N/a 6.7 9.9 1.0 N/a N/a N/a 10.0 Ningxia Saima Ind. 'A' 600449 CH 644 N/a 8.44 N/a N/a -16.1 2.8 -31.6 11.1 1.0 N/a N/a N/a 1.4 16.2 1.0 N/a N/a N/a 3.8 BBMG Corp 'A' 601992 CH 3,728 N/a 5.71 N/a N/a 1.2 -13.6 18.6 8.2 1.1 N/a N/a N/a 11.7 6.9 0.9 N/a N/a N/a 12.6 PRC peers (8 companies) -9.7 -34.2 27.5 12.6 1.5 N/a 79.6 N/a 16.9 9.9 1.3 N/a 78.1 N/a 23.1 Grasim Industries GRASIM IN 5,921 N/a 3,422.65 N/a N/a 8.9 4.4 13.5 11.4 1.6 N/a 265.6 N/a 14.7 10.0 1.4 N/a 244.8 N/a 14.8 Ambuja Cements ACEM IN 6,229 UW 214.60 140.00 -34.8% 16.5 4.7 29.6 25.2 3.7 N/a 203.6 -42.0 15.5 19.4 3.4 N/a 194.6 -50.8 18.3 ACC ACC IN 5,273 UW 1,489.20 1,190.00 -20.1% 10.4 -8.5 33.1 23.5 3.8 N/a 146.8 -54.8 16.5 17.7 3.5 N/a 139.9 -64.4 20.5 India Cement ICEM IN 587 N/a 101.30 N/a N/a 14.0 5.7 23.0 9.9 0.8 N/a 64.1 N/a 7.6 8.1 0.7 N/a 61.3 N/a 8.9 Madras Cement MC IN 842 N/a 187.70 N/a N/a 6.3 -1.9 15.2 12.0 1.9 N/a N/a N/a 16.7 10.4 1.6 N/a N/a N/a 16.6 Indian peers (7 companies) 13.9 12.3 18.1 23.0 3.7 N/a 208.3 -5.8 16.6 20.4 3.6 N/a 198.9 -26.6 17.8 Holcim 'R' HOLN VX 22,202 OW 63.40 71.00 12.0% 24.4 11.9 38.4 17.3 1.2 N/a 167.2 51.2 7.0 12.5 1.1 N/a 161.3 41.1 9.1 Lafarge LG FP 16,208 OW (V) 43.62 55.00 26.1% 31.2 13.2 52.0 16.2 0.8 N/a 152.6 59.9 4.8 10.7 0.7 N/a 146.5 51.0 7.0 Cemex CX US 9,718 N(V) 8.80 8.50 -3.4% N/a -46.7 -55.3 N/a 0.9 N/a 370.3 139.5 N/a N/a 0.9 N/a 361.3 139.8 N/a Heidelbergcement HEI GR 9,791 OW 40.36 60.00 48.6% 29.0 14.4 45.5 12.0 0.6 N/a 168.3 52.1 4.9 8.2 0.5 N/a 161.4 43.3 6.8 Ciments Francais CMA FP 2,100 N/a 45.35 N/a N/a 15.4 13.2 17.6 12.3 0.5 N/a N/a N/a 3.9 10.4 0.5 N/a 62.6 N/a 4.6 Buzzi Unicem BZU IM 2,190 N/a 9.12 N/a N/a 100.0 116.7 84.6 35.1 0.7 N/a N/a N/a 2.0 19.0 0.7 N/a 80.4 N/a 3.6 Italcementi IT IM 1,201 N/a 4.05 N/a N/a -43.6 -98.5 2,000.0 404.8 0.3 N/a N/a N/a 0.4 19.3 0.3 N/a 52.4 N/a 1.7 Pretoria Por.Cmt. PPC SJ 1,948 N/a 28.38 N/a N/a 12.5 15.3 9.6 13.0 9.2 N/a 29.2 N/a 79.8 11.9 7.7 N/a 29.3 N/a 59.8 Titan Cement TITK GA 1,454 N/a 13.95 N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a Adelaide Brighton ABC AU 2,054 N/a 3.15 N/a N/a 5.9 3.4 8.3 13.1 2.0 N/a N/a N/a 15.4 12.1 1.9 N/a N/a N/a 15.9 Cimsa CIMSA TI 598 OW 8.02 11.70 45.9% 12.7 6.7 19.1 8.0 1.2 N/a 69.7 18.0 15.5 6.7 1.2 N/a 75.1 25.6 17.7 Adana Cimento ADANA TI 334 OW 3.35 5.15 53.9% -3.8 -9.6 2.5 4.2 1.2 N/a 37.6 13.9 15.3 4.1 1.1 N/a 42.2 22.7 15.3 Global Cement peers (12 companies) 26.8 5.4 62.5 16.8 1.1 N/a 189.9 67.8 8.4 11.4 1.1 N/a 174.0 60.2 9.6 All Cement peers (43 companies) 9.3 -9.0 41.9 17.0 1.9 N/a 156.3 67.2 12.6 13.1 1.7 N/a 147.4 57.2 14.9

Source: Thomson Reuters Datastream, Corporate information; Note: average excludes negative ratios, except for EPS growth. For average calculation ratios over 50, growth rates over 50% are taken as 50 and PEG greater than 2.5 are taken as 2.5. Price at 16 Oct 2012. (*) CRC, AC (China), CNBM, Shanshui, Sinoma, Anhui Conch ('H'share), Titan Cement, Pretorial Por. Cmt., Lafarge, Holcim, Adana Cimento, Cimsa, Cemex, Heidelberg Cement, Ambuja Cement, ACC are HSBC estimates

*Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated.

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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Elaine Lam

Important disclosures

Stock ratings and basis for financial analysis

HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 17 October 2012, the distribution of all ratings published is as follows: Overweight (Buy) 46% (27% of these provided with Investment Banking Services)

Neutral (Hold) 39% (26% of these provided with Investment Banking Services)

Underweight (Sell) 15% (20% of these provided with Investment Banking Services)

Share price and rating changes for long-term investment opportunities

TCC Intl (1136.HK) Share Price performance HKD Vs HSBC rating history Recommendation & price target history

From To Date

N/A Neutral (V) 14 January 2010 Neutral (V) Underweight (V) 14 November 2011 Underweight (V) Neutral (V) 19 March 2012 Neutral (V) Underweight (V) 08 August 2012 Target Price Value Date

Price 1 4.03 14 January 2010 Price 2 3.60 18 January 2010 Price 3 3.42 25 March 2010 Price 4 2.40 20 May 2010 Price 5 2.60 10 June 2010 Price 6 3.30 13 September 2010 Price 7 3.60 25 January 2011 Price 8 4.70 23 June 2011 Price 9 5.60 03 August 2011 Price 10 3.00 14 November 2011 Price 11 2.70 27 January 2012 Price 12 3.50 19 March 2012 Price 13 1.50 08 August 2012

Source: HSBC

0

2

4

6

8

10

12

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Source: HSBC

China Resources Cement (1313.HK) Share Price performance HKD Vs HSBC

rating history

Recommendation & price target history

From To Date

N/A Overweight (V) 14 January 2010 Overweight (V) Overweight 29 November 2010 Overweight Overweight (V) 14 November 2011 Overweight (V) Neutral (V) 28 June 2012 Target Price Value Date

Price 1 4.80 14 January 2010 Price 2 5.00 22 March 2010 Price 3 5.30 23 August 2010 Price 4 6.60 13 September 2010 Price 5 7.20 29 November 2010 Price 6 7.40 06 December 2010 Price 7 7.50 25 January 2011 Price 8 8.00 06 March 2011 Price 9 9.80 05 May 2011 Price 10 7.70 14 November 2011 Price 11 7.40 12 December 2011 Price 12 7.90 19 March 2012 Price 13 5.50 28 June 2012 Price 14 4.20 13 August 2012

Source: HSBC

3

4

5

6

7

8

9

10

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Source: HSBC

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HSBC & Analyst disclosures Disclosure checklist

Company Ticker Recent price Price Date Disclosure

CHINA RESOURCES CEMENT 1313.HK 4.59 16-Oct-2012 4, 6, 7TCC INTL 1136.HK 2.03 16-Oct-2012 2, 7

Source: HSBC

1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next

3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this

company. 4 As of 30 September 2012 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 August 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 August 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 August 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as

detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this

company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in

securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures 1 This report is dated as at 18 October 2012. 2 All market data included in this report are dated as at close 15 October 2012, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4 As of 30 September 2012, HSBC and/or its affiliates (including the funds, portfolios and investment clubs in securities managed by such entities) either, directly or indirectly, own or are involved in the acquisition, sale or intermediation of, 1% or more of the total capital of the subject companies securities in the market for the following Company(ies) :CHINA RESOURCES CEMENT

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Disclaimer * Legal entities as at 8 August 2012 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR

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Global Industrials Research Team

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