* Shui On to focus on distressed property
* Cement acccounts for a quarter of Shui On's total asset
* Sees property revenue up 30 pct in 2010 to over HK$4 bln (Adds Lafarge response, details)
By Joy Leung
HONG KONG, April 7 (Reuters) - Shui On Construction & Materials Ltd plans to phase out cement production, possibly by selling its stake in an underperforming China joint venture to partner and the world's largest cement maker Lafarge SA , as it shifts focus to real estate, its chief executive said.
Established in 2005, the joint venture, Lafarge Shui On Cement Ltd, posted an 80 percent fall in net profit for 2010 despite a strong recovery in China's cement industry that fuelled earnings for rivals such as Anhui Conch Cement Co Ltd .
Shares of Hong Kong-listed Chinese cement companies have been advancing on Beijing's plans to increase social housing.
Shares of Anhui Conch, which have gained 42 percent so far this year, hit an all-time high of HK$52.40 on Thursday before closing at HK$51.80, up more than 6 percent. China National Building Material Co Ltd rose 3.5 percent on Thursday and has gained more than two-thirds this year.
However, Shui On Construction has lagged. Its shares ended Thursday down 0.5 percent, little changed from the end of last year and underperforming a 5.4 percent year-to-date gain by the main index .
"We are extremely disappointed by the performance of the joint venture," Philip Wong, chief executive at Shui On Construction and Materials Ltd, told Reuters in a telephone interview.
"We will gradually phase out the cement business but its performance was bad and it can't be sold for a good price," he said. "Selling back to Lafarge is an option."
However, no talks had been held on the possible sale and there was no timetable for any, Wong said, adding that Shui On's management was exploring different channels to improve operations at the joint venture.
Lafarge declined to comment.
SPINOFF SHELVED
Lafarge Shui On, 45 percent held by Shui On and 55 percent owned by Lafarge, focuses on projects in southwestern China, including the provinces of Chongqing, Guizhou, Sichuan and Yunnan that are benefitting from the government's favourable "go west" policy. Its ranking in the region has fallen below tenth place from fifth.
Shui On had plans to spin off the joint venture in an initial public offering to raise $600 million in 2009, according to sources, but the IPO was shelved because of an industry downturn.
China National Building Material, the country's top cement maker by capacity, reported a 43 percent rise in 2010 net profit. Anhui Conch Cement, China's second-largest, posted a 74 percent profit jump for last year.
"China's cement demand over the next 5-10 years is still rising, although low-grade cement will slowly be eliminated and there won't be much new capacity for that," Anhui Conch Chairman Guo Wensan told Reuters.
Wong said Shui On would focus on the development of special situation, or distressed real estate projects in China.
The company spun off property arm Shui On Land Ltd in 2006 and has since participated in such real estates projects, which often arise from a downturn in market conditions, project mismanagement or financial difficulties for developers.
Real Estate accounts for about half of Shui On's total assets, while cement represents 25 percent.
Wong forecast Shui On to book revenue of HK$4 billion this year, up 30 percent from a last year. Contract sales were estimated at HK$5-6 billion this year. (Writing by Alison Leung; Editing by Chris Lewis)