Citi upgraded Asian cement (0743.HK) to buy from sell and raised its target price to HK $5.36 from HK $2.71.

Citi expects results to bottom out in fiscal 12, with cement prices in central China down 10 per cent from a year earlier. Asian cement currently trades at 6.2 times forecast earnings for fiscal year 12, and valuations do not appear to be high. As the cement industry bottomed out, Citi changed its valuation criteria from corporate value per tonne to a price-to-earnings ratio of 8 times earnings for 12 fiscal years for Asian cement, the historical average price-to-earnings ratio since the stock went public.

Citi added that Asian cement had a dividend yield of 5 per cent in fiscal year 11 and that given its abundant cash income, the company should also be able to take advantage of Anhui Anhui Conch Cement / China National Building Material (3323.HK) / and China Resources cement (1313.HK) to integrate in the southwest.