Guotaijun downgraded Asia Cement (00743-HK) to neutral, maintaining a target price of HK$4.2, which is equivalent to 14.3 times the predicted price-earnings ratio for 2011. Guotai Junan said the company sold 11 million tons in January-August, with a gross margin of around 18%. Due to the impact of the rainy season, cement sales along the Yangtze River were not ideal in July and August, with gross margin close to 14%. Beginning in September-October, as local governments in East China began to restrict electricity, cement sales prices in the Yangtze River Basin began to rise, rising by about 20 yuan per ton (RMB, same below). Guotai Junan also said that the risk of cement overflow in the Sichuan region is higher than previously anticipated, the cement price trend is lower than expected, and it is expected that it will be difficult for the market to recover within a year. Although cement prices in the Yangtze River Basin have rebounded recently, it is mainly due to electricity restrictions on local cement production capacity in Anhui Province. The report believes that this situation will not last. Entering the peak season, the company's profit is recovering, but more slowly than expected. Asia Cement dropped 5.01% yesterday to close at HK$3.98.