Maintaining Hold; reducing target price to HKD4.1/share The next few years should be challenging for Shanshui. Demand growth in its core markets of Shandong and Liaoning has matured, while pricing is subject to more downside risk, in our view due to 1) new capacity additions and 2) potential anti-trust breaches threatening the strong price coordination in place. Its aggressive expansion into Shanxi will likely be met with intense competition and become a drag on Shanshui's overall profitability. Net gearing should reach c.150% in 2013, as the company expects to add 10mt of capacity. Our downward earnings revision, we are now c.30% below consensus. Hold. NDRC investigation; high prices in Liaoning and Shandong at risk The NDRC has begun an investigation into price collusion across various provinces in China, but the results have yet to be released. In 2012, Liaoning cement producers were fined RMB15.4m for antitrust breaches and it could be more serious in 2013. We believe this investigation may be an overhang for the stock, as Liaoning and Shandong are among the highest priced provinces, after successful previous price coordination. We now model 5% and 2% price declines in Liaoning and Shandong respectively for 2013. Shanxi: an exciting story for the long term; oversupplied in the near term We expect cement consumption in Shanxi to double and reach 67mt by the end of 2015. However, 2012-2013 should be the height of capacity additions with c.20mt of new capacity (or 35% of end-2011 capacity). As a result, we believe utilization rates will hover below 60%. Shanxi remains very fragmented with the top three companies controlling only 30% of the total capacity; therefore ASPs will be under pressure as competition intensifies over the next few years. Revising FY13-14E earnings down by 11% Our target price is now derived using 6.9x FY13E PER, based on a 20% discount to its three-year historical mid-cycle average of 8.7x. We continue to apply a discount for corporate governance concerns regarding management bonus payout. A 5% change in ASPs would swing EPS by 42%. Industry risks: higher/lower-than-expected change in ASPs, lower/higher-than-expected changes in demand and in coal prices and raw material costs. Company-specific risks include: 1) breakdown of price cooperation in Shandong; 2) greater-than-expected capacity additions in Shandong and Liaoning; 3) cement inflows from Anhui driving down prices.