20211108-招银国际-WESCHI_–_limited_capex_spent_in_Ethiopia_expansion_so_far._Still_OW_on_robust_China_s_operation_4页_528kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary issued by CMBI Fixed Income Department, focusing on WESCHI's credit profile and its expansion strategy in Ethiopia. The commentary highlights the company's financial stability, its strategic approach to capital deployment, and the impact of geopolitical developments on its operations.

Main Points

• Bond Price Movement: WESCHI bond price declined by 4 points last week due to news of Ethiopia announcing a nationwide state of emergency. This was triggered by the escalation of regional conflict in the Northern area, where Tigray rebel forces advanced towards the capital, but it has not yet turned into a full-blown civil war.

• Recommendation: Despite the geopolitical risks, the analysts maintain their "Overweight" (OW) recommendation on WESCHI '26 at 93, with a yield to maturity (YTM) of approximately 7%. This is based on the company's prudent capital expenditure (capex) deployment and its low leverage.

• Leverage and Refinancing Pressure: WESCHI's leverage is expected to remain below 2.5x Debt-to-EBITDA, supported by its robust operations in Shaanxi, China. The company has minimal refinancing pressure in 2022, as its next bullet maturity is RMB 500mn onshore MTN due in May 2022, which can be repaid through internal cash flow or its undrawn bank line of RMB 849mn.

• Ethiopia Expansion: The company has spent USD 25mn so far on acquiring a 61.9% stake in an Ethiopian cement company, "NCSC," out of a total project budget of USD 450mn. The stake acquisition was initially expected to be completed by 1Q2022 for USD 170mn, but there is likely to be a delay due to the political uncertainty in Ethiopia.

• Expansion Capex: WESCHI plans to raise USD 200mn in local project financing to expand NCSC's production capacity from 1.2mt to 5mt. The company's planned annual capex in Ethiopia is USD100mn – USD150mn, but this may be delayed.

• Financial Performance: WESCHI has managed to increase its average selling price (ASP) in China to RMB 570/ton in October, up from RMB 319/ton in 1H21. This, along with a rise in coal prices (from RMB 628/ton to RMB 1200/ton), supports the expectation that the company's FY2021 gross profit margin will remain similar to FY2020's 33%, contributing to an EBITDA of approximately RMB3bn in 2021, against total debt of RMB7.6bn by end-2021.

Key Information

• Contact Details:

  • Polly Ng 吴宝玲: (852) 3657 6234 | pollyng@cmbi.com.hk
  • Glenn Ko, CFA 高志和: (852) 3657 6235 | glennko@cmbi.com.hk
  • Wilson Lu 路伟同: (852) 3761 8918 | wilsonlu@cmbi.com.hk
  • James Wen 温展俊: (852) 3757 6291 | jameswen@cmbi.com.hk
  • CMBI Fixed Income: fis@cmbi.com.hk

• Company Background:

  • CMBIS is a wholly owned subsidiary of CMB International Capital Corporation Limited, which is itself a subsidiary of China Merchants Bank.

• Author Certification:

  • The author certifies that the views expressed in the report reflect their personal views and that their compensation is not directly or indirectly related to the views in the report.
  • The author also confirms that they have not traded in the stocks covered in the report within 30 days prior to its release and will not do so within 3 business days after.

• Important Disclosures:

  • The report is for informational purposes only and does not constitute investment advice.
  • The information is based on publicly available data and is not guaranteed for accuracy or completeness.
  • CMBIS may have conflicts of interest and is not liable for any losses or damages resulting from reliance on the report.
  • The report is intended solely for the use of the intended recipients and may not be reproduced or distributed without prior written consent.

Disclaimer

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• Singapore: The report is distributed by CMBI (Singapore) Pte. Limited (CMBISG), an Exempt Financial Adviser regulated by the Monetary Authority of Singapore. CMBISG accepts legal responsibility for the contents of the report only to the extent required by law for non-Accredited, non-Expert, or non-Institutional Investors.