Flash Analysis

What happened

On November 7, 2026, according to corporate filings, Huaxin Building Materials Group (Huaxin) entered into a share purchase agreement with Companhia Siderúrgica Nacional (CSN) to acquire a 99.99% stake in CSN Cimentos Brasil S.A. held by CSN for an estimated consideration of BRL9.03bn (around US$1.64bn or Rmb11.29bn). The transaction is based on an agreed enterprise value (EV) of BRL12.7bn (around US$2.31bn), subject to adjustments for net debt and working capital at closing. Upon completion, the firm will consolidate the target company into its financial statements.

Comments

Transaction valuation could be below median of comparable Brazilian deals. According to corporate filings, the target company has seven integrated cement plants, six grinding plants, and seven supporting limestone mines, with annual cement production capacity of 17mnt (around 21% Brazilian market share) and limestone reserves of around 2.2bnt.

The consideration implies EV per tonne of annual capacity of around BRL747 (US$136/t). Based on EBITDA of BRL1.58bn in 2H25–1H26, we estimate EV/EBITDA at around 8.1x, below the median of 9.4x for comparable Brazilian transactions disclosed in the announcement (range: 7.1–11.9x).

Solid EBITDA margin of target assets; debt refinancing could boost net profit growth. Assuming the target assets' capacity utilization rate is close to the Brazilian cement market average, we estimate average EBITDA per tonne at around BRL124 (US$22/t) in 2H25–1H26, implying an EBITDA margin of around 30%, indicating solid profitability.

However, the target company recorded a net loss of US$12mn in 1H26 due to high financing costs arising from financial difficulties at its controlling group. According to corporate filings, the firm may reduce expenses after closing by gradually refinancing the target assets' high-interest bank loans. The target company's net financial expenses were around US$110mn in 2025, implying a financing cost on net debt of around 16%. If its overall financing costs decline, we believe lower financial expenses could drive an improvement in net profit.

Brazilian cement demand has growth potential; CR5 at 88% indicates high supply concentration. On the demand side, according to Sindicato Nacional da Indústria do Cimento (SNIC), cement consumption in Brazil rose 3.6% YoY to 67.05mnt in 2025. Per capita consumption was around 312kg, below the global average of around 479kg, suggesting considerable room for growth.

On the supply side, Brazil produced 67.46mnt of cement in 2025, with the top five producers accounting for around 88% of the market. We believe high supply concentration could support relatively stable profitability in Brazil's cement industry.

Financials and valuation

Without considering any impact from this acquisition, we maintain our 2026 and 2027 attributable net profit forecasts at Rmb3.85bn and Rmb5.03bn. The stock is trading at 14.8x 2026e and 11.3x 2027e P/E. We maintain OUTPERFORM and our target price of Rmb31.50, implying 13x 2027e P/E with 15% upside.

Risks

Uncertainty over regulatory approval progress; sharper-thanexpected FX fluctuations; overseas political and operational risks.