OREANDA-NEWS. Fitch Ratings says that Anhui Conch Cement Company Limited (Conch, A-/Stable) has maintained its financial strength and improved its market share in 2015, despite a sharp decline in the Chinese cement market. We expect Conch to maintain these trends in 2016 even though the market is not likely to recover significantly.

Sales volume in China's cement industry fell 4.9% and average selling prices (ASPs) decreased 15% in 2015, driven by the weakness in fixed-asset investments and industry oversupply.

Conch has outperformed its peers by increasing its sales volume by 3%, although its cement and clinker ASP declined 18.3%. As a result, Conch's nationwide market share increased to 11% in 2015 from 10% a year ago, and it extended its lead in its core markets of eastern and central China. Conch has not been immune to the industry downturn - its revenue declined 16%, its EBITDA margin narrowed to 26% in 2015 from 32% in 2014, and its profit declined 32.54%. However, it fared better than the overall Chinese cement industry, which saw profit fall 57%.

Conch is taking advantage of the industry downturn to selectively acquire smaller competitors - including taking a controlling stake in West China Cement Limited (WCC, BB-/Rating Watch Positive) - to extend its market share in its core markets. Its net debt fell by 17% in 2015, supported by its strong operating cash flow. However, its net debt to EBITDA ratio increased to 0.37x in 2015 from 0.30x in 2014 due to a lower EBITDA. Capex and acquisitions in 2015 amounted to CNY8.7bn, which was covered by cash flow from operations of CNY10bn.

Fitch expects the Chinese cement market to continue to be oversupplied in 2016 because elimination of obsolete capacity has been slow. We expect the cement market to remain weak, with seasonal rebounds as was evident in March, when ASP rose 1% compared with the previous month due to restocking. We expect Conch's revenue to be flat and EBITDA margin unchanged in 2016. However, strong operating cash flows and disciplined acquisitions will protect the company's balance sheet strength.