Company Profile: China ACM is the industry leader for

supplying ready-mix concrete to key infrastructure

projects throughout China. Founded in 2002, CADC has

grown to employ over 1,000 people, and is now one of the

largest providers of specialty concrete mixtures in

Beijing.

What is Ready-Mix? Ready-Mix concrete, as opposed to

site-mixed concrete, is used in 21st-century building

practices. In China, High-Speed Rails, skyscrapers, and

much else requires the use of ready-mix concrete.

Why Ready-Mix? Ready- Mix is a better type of concrete,

produced more efficiently, with reduced waste of basic

materials, and reduced noise and dust pollution. China’s

development into a 1st-word country comes with the use

of 1st-world construction techniques.

The Opportunity: With a growing presence in 10 provinces around

China, CADC, through its proprietary technology, technical experience,

superior reputation, and strong government ties, is positioned to

capitalize on China’s incredible growth. Ready-Mix concrete is the fastest

growing sub-segment of a highly fragmented market that has grown 25%

annually over the last ten years and is expected to continue into the

foreseeable future. With a proven track record of sales, CADC’s bottom

and top line growth has been phenomenal over the last three years.

Driving this growth is the construction industry’s transition into 21st

century building materials that are less pollutant and more structurally

sound. Lead by an experienced executive team, CADC is at the forefront of

the rapidly expanding Chinese ready-mix market.

Recommendation:

BUY 3,600 Shares for a NAV of ≈$20,000

High-growth, Low P/E

Portfolio lacks foreign exposure

Technical Timeliness

“First to the Party”

Growing coverage

Chris Crawford, Cherise Robinson, and Benjamin Thomas

Key Statistics

Recent Price $5.60

52 Week Range $1.01-$8.50

Price Target $6.96

Margin of Safety 24%

Market Cap. $74.1 million

Return on Equity 40%

Beta 1.74

Current Ratio 1.26

P/E 6.4

P/B 1.8

% Held by Insiders 30%

% Held by Inst. 4%

2

TABLE OF CONTENTS Company Overview & Investment Thesis ............................................................................................................................... 2

Competitive Advantages ................................................................................................................................................................ 4

Management ....................................................................................................................................................................................... 6

Product Mix and Operations ........................................................................................................................................................ 7

Growth Strategy ................................................................................................................................................................................ 9

Industry Analysis ........................................................................................................................................................................... 10

Macro Analysis ............................................................................................................................................................................... 11

Peers and Competitors ................................................................................................................................................................ 12

Investor Relations ......................................................................................................................................................................... 14

SWOT Analysis ............................................................................................................................................................................... 15

Porter’s 5 Forces ............................................................................................................................................................................ 17

Price Performance and News ................................................................................................................................................... 19

Comparative Ratios ...................................................................................................................................................................... 21

Pro Forma Income Statement ................................................................................................................................................... 25

Discounted Cash Flow Models .................................................................................................................................................. 31

Relative Multiples Valuation ..................................................................................................................................................... 34

Conclusion ........................................................................................................................................................................................ 36

Appendix ........................................................................................................................................................................................... 37

SEC Filings ........................................................................................................................................................................................ 38

Works Cited ..................................................................................................................................................................................... 42

Analyst Coverage ........................................................................................................................................................................... 43

3

COMPANY OVERVIEW & INVESTMENT THESIS China Advanced Construction Materials is a concrete company that operates in the People’s Republic of

China, is legally incorporated in Delaware, and is traded on the NASDAQ.

China will soon exceed the United States as the world’s largest economy, and yet for all of the opportunity

that the country represents, it is relatively difficult to find qualified investment vehicles. China Advanced

Construction Materials Inc. is one rare, qualified investment. China ACM is a producer of ready-mix

concrete, an essential ingredient in high-quality, modern construction methods. Ready-mix is used

throughout the developed world, but has only recently been incorporated in large-scale Chinese

construction. As the People’s Republic of China strives to prepare its infrastructure for the 21st century,

its building materials must also be brought into the future.

TREND TOWARDS URBANIZATION The PRC’s Ministry of Housing and Urban-Rural Development estimates that 300 million Chinese now

living in rural areas will move into cities between 2010 and 2025. This estimation would be incredible if

it were not for China’s recent history—its cities have exploded in size and economic power. Correlated to

this phenomenon is China’s ongoing need for urban services, including water supply, waste treatment,

heating, and transportation. Unlike in most western nations, most of these services are still provided

and controlled by the government.

INFRASTRUCTURE INVESTMENT China’s cities are the catalysts of its rapid growth, and the government will do whatever it takes to keep

the urban centers functioning. The budget for infrastructure development in China is staggering, as

evidenced by Beijing’s new Olympic Stadium, Shanghai’s new downtown, and the massive $586 billion

stimulus package, much of which is devoted to the construction of modern infrastructure. One

project in particular is the government’s plan to link all of its major cities by High-Speed Rail.

Encouraged by this commitment, Chinese and Foreign investors are finding ample reason to invest their

own resources in Chinese construction, with increasingly complex and technically demanding

projects.

NEED FOR ADVANCED CONSTRUCTION MATERIALS China has, instead of shying away from foreign and costly building practices, embraced new methods and

materials such as ready-mix concrete. China ACM represents the country’s foremost provider of advanced

concrete mixtures, well on par with the manufacturers and technical consultants that the Chinese

previously had to outsource to regarding modern concrete solutions. The country has been the world’s

largest consumer of concrete for over 17 years, and it approaches the distinction of consuming more

concrete than the whole world combined, but it is only with the nation’s newfound appetite for

technologically-complex structures that this growth is reflected in the sub-industry of advanced concrete

mixtures.

4

COMPETITIVE ADVANTAGES

TECHNOLOGICAL ADVANTAGE First, China ACM has positioned itself as a technologically advanced manufacturer and consultant. Both

imported foreign technology and the company’s own research and development have made its product

offering among the most advanced in the market. Associated with their complex concrete mixtures are

the engineers, consultants, and workers that are needed to properly utilize the advanced mixtures.

The company has, related to its environmental initiatives, invested in processes that use recycled

materials and less energy. China ACM holds proprietary technology related to this concept, and maintains

partnerships with the PRC’s leading universities, including “China’s MIT,” Tsinghua, and the Beijing

Institute of Concrete, which is a research firm wholly owned by China ACM’s executives. These

partnerships also contribute to the strength of China ACM’s human resources, as they allow the company

to attract and recruit the best and brightest minds in the industry.

China ACM’s technical prowess is well-recognized, and has encouraged the company to expand its

practice of providing its personnel as consultants. Projects that require the use of advanced concrete

mixtures benefit from China ACM’s advice and experience. During a consultancy, China ACM develops

business relationships that often lead to larger contracts.

In addition, China ACM’s products bear a warranty of 100 years, versus the industry standard of 50 years.

Chinese government contractors are becoming increasingly conscious of quality, particularly after events

like the earthquake in Sichuan Province that leveled several government structures and the Beijing

Olympics, where the whole world could view Chinese workmanship.

TAX EXEMPTIONS China ACM enjoys extremely favorable tax exemptions for reasons mostly related to their status as a

technologically advanced producer, both in terms of the company’s commitment to the environment and

energy efficiency. The company has made significant investments in attaining government certifications,

using recycled materials, and employing energy-saving processes.

Older methods of producing concrete produce a large amount of air pollution as a result of the associated

heat processes, and are conducted on-site to reduce the cost of transportation. China ACM benefits from

government incentives to avoid both problems using modern methods. These benefits combine to make

China ACM’s estimated marginal rate of taxation 15%.

6% VAT – Enterprises who sell commodities in the People’s Republic of China, such as China ACM, are

subject to a Value-Added Tax rate of 6% on gross sales. The company is exempt from this tax because

their products use recycled materials. The company has enjoyed this benefit since 2005, and

management expects to continue to be exempt from the VAT into the company’s operating future.

5

10% Income Tax Deduction – China ACM qualifies as a “High-Tech Income Tax Beneficiary.” This amounts

to a 10% reduction in the standard 25% income tax in the PRC.

GOVERNMENT RELATIONSHIPS AND EXECUTIVE INSIDERS China ACM benefits from excellent connections within the Chinese government, largely due to its

superbly well-positioned chief executives. As the tax environment for high-tech, “green” companies

become favorable, the government ministries and State-owned companies made room for two of their

own to start China Advanced Construction Materials. Xianfu Han and Weili He collectively own 30% of

the company.

XIANFU HAN – Concrete Expert and Lawmaker – Mr. Han has been working in the construction materials

business for over 25 years (within State-Owned Enterprises), and has most recently taken an active role

in shaping government policy concerning such matters. Through his Beijing Concrete Institute, Han has

contributed to two very important pieces of legislation: the “Local Standard of Mineral Admixtures”

regulations and the “Research and Application of Green High Performance Concrete” published by the

Ministry of Construction. The first document requires the use of ready-mix in urban areas, and the second

document advocates the use of tax incentives to encourage “green” concrete technology. In other words,

Han has essentially written the laws under which China ACM now operates under.

WEILI HE – Communist Party Insider – Mr. He is another impressively powerful individual. His

connections to the government are unshakable, evidenced by several key notes about his past. He, like

Han, has been working in the construction materials business for many years, also within State-Owned

Enterprises. He’s self-proclaimed skill is in strategic planning, which directly correlates to his constant

interaction with the government officials who originate high-profile contracts like those that he wins for

China ACM. The mystery of He’s success with the Chinese government is less confusing when considering

his deep affiliation with a single, supremely powerful group: The Communist Party of China. He was

born on the inside, and his bachelor’s degree from the Party School of the Central Committee is evidence

that He has only gone further inside China’s ruling class.

BEIJING INSTITUTE OF CONCRETE Han and He are the joint founders of the B.I.C., a research group whose focus is developing

environmentally concrete mixtures—and assisting the government in crafting concrete-related policy.

Ready-Mix must be used in urban areas – In an effort to mitigate the noxious pollution that hangs above its

major urban areas, the Chinese government has mandated that all concrete used on urban worksites

be produced off-site and trucked in using ready-mix form. In an effort to reduce pollution and improve

the quality of its structures, all Chinese government building projects must use ready-mix concrete.

Green and High-tech Tax Incentives – The Chinese government is very interested in cultivating “green”

and high-efficiency industry to counterbalance the dirty and low-tech industry that is the overwhelming

majority.

6

1 - Tax Rate 85%

Income Before Taxes 8,584,459$

Interest Expense (385,241)

EBIT 8,969,700

NOPAT (6 months) 7,624,245$

WACC (6 month adjusted) 13.00%

Fixed Assets 32,051,813$

+ Net Working Capital 8,322,724

Net Assets 40,374,537

Money Cost of Capital (6 months) 5,248,690$

EVA 2,375,555$

EVA/Share 0.15

2010 EPS (1st half) 0.43$

EVA for First Half 2010

MANAGEMENT We believe that China ACM’s managers are an integral part of the company’s future growth, and from a

review of their credentials, we have concluded that this young company is in good hands. Together, the

company’s top management and board of directors have 135 years of experience, mostly as the top

management for other firms, in addition to their high-quality educations and affiliations.

POSITION AND COMPENSATION

JEREMY GOODWIN – Mr. Goodwin has recently been named both Chief Financial Officer and President of

CADC. His resume cites his extensive experience in M&A, debt and equity financing, restructuring,

privatization, and business expansion. Goodwin has an undergraduate degree from Cornell University, an

advanced degree in Chinese affairs from Princeton University. He is fluent in Mandarin Chinese, French,

and English.

ECONOMIC VALUE ADDED An economic value added analysis (first-half 2010) of China

ACM’s management team demonstrates the quality of their

operational decisions.

The company has already reached the threshold upon which it is

returning value to its investors, despite the fact that the

company’s earnings are completely unlevered.

Also, the company’s extensive use of lease agreements, a

function of the manager’s ability to form special relationships

with its lessors, has created value.

We acknowledge, however, that much of China ACM’s growth

and profitability stem from off-balance sheet assets, such as management’s strong ties to the central

government and general contractors.

Name Age Position Salary ($) Ownership

Xianfu Han 50 Chairman, Chief Executive Officer and Director 140,000 5,285,750

Weili He 52 Chief Operating Officer, Vice Chairman and Director 109,342 3,523,833

Jeremy Goodwin 36 Chief Financial Officer, President, and Director

Denis Slavich 69 Director

Shaojian (Sean) Wang 45 Director

Larry Goldman 53 Director

All Officers & Directors 25,000 8,809,583

7

PRODUCT MIX AND OPERATIONS China ACM’s significant competitive advantages position the company to be the Chinese construction

market’s premier provider of modern concrete mixtures. That position would quickly erode in the hyper-

competitive Chinese marketplace, however, if the quality of China ACM’s products and the efficiency of its

operations were not consistently the best of its peers. China ACM has three main revenue sources:

concrete sales, manufacturing services, and technical consulting.

CONCRETE SALES The company produces a range of high quality concrete, comprising 77% of current sales with a gross

margin of roughly 10%.

China ACM owns one concrete plant and the related equipment, and leases four additional plants in the

Beijing area. This regional focus has allowed China ACM to gain a dominant market share one of China’s

fastest-growing urban areas.

China ACM’s quality and expertise have been acknowledged by the American and French governments.

The French Government chose China ACM over Lafarge to build its new embassy in Beijing, despite the

fact that Lafarge is a French company with operations in Beijing. Similarly, the U.S. government selected

China ACM for the construction of their own new embassy. Both the U.S and the French governments

conducted rigorous due diligence on China ACM to evaluate its ability to fulfill the project’s stringent

requirements—further evidence of the company’s superior product, management, and capability.

Further information regarding these and other high-profile projects can be found in the appendix.

MANUFACTURING SERVICES These services are used primarily with the large high-speed rail contracts. China ACM’s portable mixing

stations are used to produce concrete on-site, using raw materials provided by the general contractors.

This process dramatically reduces China ACM’s up-front capital investment and expands the gross margin

to roughly 40%. This service accounts for 14% of total sales.

CHINA’S HIGH-SPEED RAILWAYS AND PORTABLE MIXING A promising part of China ACM’s business, and a source of

strong income, is its participation in the government’s

ambitious plan to expand its network of High-Speed Rails.

These projects require China ACM’s technical expertise, but

are too far away to utilize the company’s Beijing-based

PORTABLE MIXING PLANT

THE CCTV TOWER

8

mixing plants. For this purpose, China ACM has invested in a “portable mixing” business unit.

As stated above, the raw materials in these projects are brought in by other contractors, resulting in

China ACM focusing entirely on the value added process of mixing and applying high-grade concrete.

China ACM has invested in 12 portable mixing stations (necessary for the construction of high-speed

rails) and has recently acquired the funds to purchase two more. The start-up cost for these plants is

$3,000,000 with a payback period of 4 years. The plants have a useful life of ten years with average

annual revenues of $1,700,000. The stations allow China ACM to expand its geographic footprint and

capacity while maintaining its commitment to the environment. The units can be dismantled and moved

to a new site within a few weeks, costing roughly $100,000.

TECHNICAL SERVICES AND RENTALS China ACM provides technical service for companies lacking expertise in the production of high-quality

ready-mix concrete. Moreover, these services are provided only to projects located outside beyond China

ACM’s geographic reach. Currently, these services are employed in 5 plants; three in Beijing, one in

Sichuan, and one in Shanxi. China ACM is compensated with a percentage of the 3rd party’s cost savings

and additional profit. This highly-profitable and scalable model requires only 10 personnel per plant.

Furthermore, these services comprise 5% of total profit, but with a gross margin of roughly 93%.

China ACM also provides rental services, allowing the use of its property, plant, and equipment and

related personnel. This service comprises only 4% of total revenue, with a gross margin of about 80%.

As a testament to CADC’s expertise and experience, we have included photos of a few of the projects for

which the company has provided technical services.

Further information regarding high-profile projects can be found in the appendix.

9

GROWTH STRATEGY China Advanced Construction Materials intends to continue their growth in operations and cash flow through the following business practices, as stated on their 10-K:

EXPANSION OF CAPACITY: Through the building of new plants, China ACM plans to grow their operating capability and thus their ability to meet the growing demand for concrete in China. They have already added nine new portable mixing stations in 2009, and plan on adding more in both 2010 and 2011. These portable mixing stations are very attractive investments for China ACM because of the high IRR on these investments. Furthermore, the portable mixing stations provide high profit margins for the company, so expansion in this area is an obvious driver of both growth in cash flows and gross profits.

MERGERS AND ACQUISITIONS: China ACM views the current fragmentation of its industry as an opportunity to acquire smaller, struggling companies and utilize their assets. The company sees the advantage in buying over building when replacement costs of assets are higher than purchase prices, and given the opportunity, is ready and able to merge with or acquire another company at a favorable price. Through this M&A, China ACM will encourage expansion in both capacity and geography. As the company continues to grow, the only option will be to service regions elsewhere, and the acquisition of small companies outside its current geographic base will provide the facilities necessary to support this growth.

VERTICAL INTEGRATION: The company seeks to acquire not only companies with similar operations, but also companies on either end of its supply chain, thus implementing a verticality to its supply chain. By gaining control over the supply of its raw materials, China ACM will become less vulnerable to price discrepancies for raw materials needed for manufacturing.

SUPPLY CHAIN EFFICIENCIES AND SCALE: Through its efforts to optimize its supply chain using both vertical integration and mergers and acquisitions, China ACM expects to achieve a lower average total cost and thus an increase in efficiency. Growth in these drivers will result in better pricing power.

NEW PRODUCT OFFERING: The company is always working to innovate and develop new and better concrete products. These products, added to the already strong product mix that China ACM offers, will further the company’s reputation as a leading concrete provider, as well as diversify the company’s offering. Products currently in the development stages are: light-weight aggregate concrete and pre-cast concrete.

Percent of total concrete sales

On-Site Mixing (low-tech)

Ready-Mix (high-tech)

China 70% 30% Developed World

20% 80%

10

INDUSTRY ANALYSIS The unprecedented growth within the Chinese construction industry reflects China’s building activity

accounting for half of all new building activity in the world. This growth is expected to continue till 2030

as increased urbanization unfolds, when 221 Chinese cities are expected to have a population over 1

million. During 2008, Chinese construction contributed to approximately 20% or $905 billion of

nominal GDP. According to the National Development and Research Commission, China’s stimulus

package of $593 billion has materially impacted the construction industry by contributing to

approximately $92 billion in growth during 2009. China’s stimulus package focuses on infrastructure

projects related to railways, roads, and airports.

RAILWAYS IN CHINA According to the Ministry of Railways, China will double its investment in railways to approximately

$87.8 billion during 2010. Part of this investment will go to constructing 5,148 km of new rail lines this

year. In collaboration with these new lines, the ministry also plans to begin 70 other projects this year

which will cost approximately $219.6 billion upon completion. By 2012, China will have 110,000 km of

rail lines, of which 13,000 km will be high-speed passenger rails.

CEMENT IN CHINA China has been ranked first in the world for cement production during the last 17 consecutive years.

Cement demand in China is forecasted to grow 6% annually through 2012 to account for 1.8 billion

metric tons. Rising construction expenditures are accountable for this demand. Furthermore, advances

in cement manufacturing technology will help stimulate concrete sales by enhancing product quality. By

2012, blended cement will account for 90% of total sales due to the cement’s versatility across a broad

range of construction applications, as well as its performance/price benefits over competitive cements.

China’s Central-Eastern region is projected to remain the largest cement market through 2012. Non-

residential and residential buildings are requiring more concrete due primarily to the short supply of

wood. As the largest consumer of cement in the world, China spends over $200 billion on the product

annually.

Construction contractors currently represent the largest market for cement, accounting for one-third of

total demand. However, the market for ready-mix concrete could exhibit the largest growth within

the cement industry, and could possibly have double-digit gains through 2012. This will result from the

government’s ban of on-site concrete and mortar mixing. Further demand for cement used in

concrete production will result from construction contractors increasing desire for precast concrete.

Also, the decreasing popularity of clay-bricks will drive demand for concrete blocks, therefore, increasing

the demand for ready-mix concrete.

11

MACRO ANALYSIS China’s booming economy reflects major trade and foreign investment flows, which have stemmed from

large growth in fixed assets over the years. In 2008, China was the world’s third largest importer and the

world’s second largest exporter of merchandise. Furthermore, China totaled $92 billion in foreign direct

investment making it the world’s premier destination for FDI among developing nations. The PRC is the

world’s largest holder of foreign reserves totaling $2.3 trillion, which has resulted from large trade

surpluses, FDI flows, and large-scale purchases of foreign currency. After China’s GDP grew at an

astounding rate of 13% in 2007, growth slowed to 9% in 2008 and 7.1% in the first half of 2009 as a

result of the world financial crisis. Triggered by the financial crisis, the PRC government initiated a

staggering $586 billion dollar stimulus plan, thus, helping to stabilize the economy and increase GDP

growth. Due to the PRC’s healthy cash position and the success of its stimulus package, it is unlikely that

its pattern of large-scale public spending will change significantly.

ECONOMICCMETRICS

In 2009, China’s GDP in terms of purchasing power parity equated to an estimated $8.791 trillion, and

was the world’s third largest economy. However, according to the official exchange rate, China’s GDP was

$4.758 trillion in 2009. The composition of China’s GDP by sector is 48.6% industry, 40.5% services, and

10.9% agriculture. As of a September 2009 estimate, China’s unemployment rate for urban areas was

4.3%. As the world’s largest employer, China currently has over 812 million workers. In 2009, China’s

revenues were $972 billion with expenditures totaling $1.137 trillion, which equates to public debt as a

percentage of GDP of 18.2%. Inflation was negative in 2009 at -.8%, and is currently 2.7% as of February.

However, quickly rising property values have given the Chinese government cause for concern, which has

resulted in curbing lending practices in order to control future inflation.

THREATS TO ECONOMIC STABILITY While China’s economic outlook remains positive, certain catalysts, if unaddressed, threaten future

economic growth and stability. Such variables include an inefficient banking system, pervasive

government corruption, over-dependence on exports and fixed investment growth, severe pollution, the

lack of rule of law, and widening income disparities. In response to these threats, the Chinese government

intends to create a “harmonious society” over future years aiming to create balanced economic growth

and address certain economic and social ills.

UNDERVALUED YUAN In recent U.S. news, the U.S. Treasury Department will present to congress a report in which China could

possibly be accused of currency manipulation. The U.S. government has recently increased pressure on

China to let the Yuan (pegged at approximately 6.8 vs. the U.S. Dollar) appreciate. Furthermore, some

experts believe the Yuan is currently undervalued relative to the Dollar by up to 40 percent. Thus,

if China does not alter their currency, the U.S. is prepared to issue certain trade restrictions in the future.

In relation to China ACM, the increase in the Yuan relative to the Dollar should favorably affect

CADC’s stock price as all assets and income are reported in dollars.

12

PEERS AND COMPETITORS China Advanced Construction Materials competes in a highly fragmented industry in the region

surrounding Beijing, PRC. Most of its most direct competitors are State Owned Enterprises, wholly owned

by the PRC government. Their financial information is therefore unavailable to the general public. Due to

this fact, we have chosen a variety of companies with similar operations in other regions of China and the

world as peers for China ACM. For the sake of our analysis, we believe that the following companies are

good representations of the variety and fragmentation seen in the construction materials industry, and

will effectively serve as comparable companies to China ACM.

Listed below are the company overviews and other items of interest regarding China ACM’s peers:

DOMESTIC PEERS

CHINA RUNJI CEMENT INC. (CRJI)

China Runji Cement Inc. is a producer and distributor of advanced dry-

production cement products in the Anhui Province in the People’s Republic of

China. The company has also enjoyed a “green building material” certification

due to its pollution control efforts. China Runji controls a mining facility and

thus supplies the raw materials for its one cement production line and one

cement clinker production line. This company is the largest producer of

cement materials in its region, and boasts a product mix containing high-

quality cement materials.

CHINA SHUANGJI CEMENT, LTD. (CSGJ) China Shuangji Cement manufactures Portland cement in the PRC. Shuangji

controls three cement plant facilities - one in Shandong Province and two in

Hainan Province. Both of these provinces are located near sea ports, allowing

the company to access raw materials more easily than other inland cement

manufacturers. The Portland cement produced by China Shuangji is general-

use bulk cement, unlike that of China ACM, though it is still a high-quality

building material.

13

FOREIGN PEERS

Ready-Mix, Inc. is a ready-mix concrete producer based in Phoenix, AZ. The company’s operations

include five ready-mix plants and two portable facilities, and mixing trucks. The company supplies

contractors, subcontractors, individuals and owners of both private and public construction

projects.

RMX operates in a completely different geographic and economic landscape to CADC, as the

construction industry in the United States is far more mature than the industry in China, primarily

due to the fact that the United States’ infrastructure is already well developed, while the PRC is

only beginning efforts to accommodate for its urbanization. This is the main reason why we

consider RMX a peer to CADC, and not a competitor.

Lafarge is a French-based company and a world leader in the production and sale of construction

materials such as concrete, gypsum, ready-mix and aggregates. The company operates in 78

countries worldwide under the “Lafarge” brand. Its products are used in residential, commercial,

and public infrastructure development. According to Lafarge’s annual report, it is currently the

world’s third largest producer of concrete.

Eagle Materials is an American producer of construction materials such as Portland cement,

gypsum wallboard, concrete, and aggregates. This company boasts that it is the “lowest cost

producer” in North America, with four plants and ten cement terminals, as well as vast aggregate

reserves located in Northern California. Its cement production represents 31% of its total sales,

second only to its gypsum wallboard sales (at 46% of sales in 2009).

14

INVESTOR RELATIONS

INTERVIEW WITH GENE HSIAO, CFO Conducted by IR, Summer 2009

IR : Your company has a reduction in the corporate tax rate from 25% to 15%, why, and how difficult is it

to get this tax break?

CADC : We have an Enterprise High-tech Certificate from the Government that is the result of our

involvement in Research and Development towards producing highly efficient products, such as our

recycled-materials concrete mixtures, and through our efforts to pass along this expertise via the

Technical Services we provide to other companies. It is very difficult. We currently have two patents that

play a key role in receiving these tax exemptions. The first is our patent for the high-performance,

recycled-material concrete’s formulation, and the second is our patent for the pumping that concrete,

which is designed to waste very little concrete.

IR : You obviously have an excellent working relationship with the government of China. Could you tell

us about some of the contracts you have been awarded by the government?

CADC : The Chinese Government and the large general contractors are longstanding customers of China

ACM. The company is now involved in over 7 additional railway products, with expected revenues of over

$25 million in the next year related just to our Manufacturing Services, which uses portable mixing

stations to fill the railways contracts.

IR : What do you think is going to happen in the near term and then the long-term?

CADC : In the near-term our investment in portable mixing stations, combined with our relationships and

reputation, has put us in an excellent position to participate in additional railway projects. These new

projects are being announced almost monthly. Our long-term goals are to expand our fixed-plant

operations beyond Beijing and become a leading provider of ready-mix concrete in China. As other cities,

not just the top-5, look to use more advanced construction techniques, China ACM stands to benefit.

IR : Do you have any final words?

CADC : Yes, actually. The Chinese government has issued a $586 billion dollar stimulus package. Much of

this money is allocated for infrastructure projects, which is China ACM’s focus. The building of high-speed

railways through the year 2020 is a big focus for the Chinese government. It is trying to bring service to

the large amount of people that live outside of the major cities, connecting them to our commercial hubs.

This initiative expects to consume 20 million tons of cement and the length of the rails is expected to

expand 41,000 km over the next 11 years at a cost of $730 billion. Given our close relationship with the

Government and the general contractors we expect to be a long-term beneficiary of these projects.

15

SWOT ANALYSIS

STRENGTHS

Technology: China ACM already has the most advanced product offerings for concrete in China.

The company also maintains close ties with industry innovators, such as the Beijing Institute of

Concrete. These efforts towards research and development are geared towards further innovation

and advances within the concrete industry.

Superior Warranty offering: The industry average warranty on concrete materials in China is 50

years. China ACM’s warranty offering is double this: 100 years. This provides a very good

incentive for contractors to choose China ACM over its competitors, particularly related to

Government work.

Track Record: China ACM has provided concrete and technical support for some very high-profile

projects in China, such as the Olympic Park, the CCTV Tower, the Beijing International Airport, the

new French Embassy in Beijing and the new United States Embassy in Beijing. Such high-profile

projects are a great source for publicity and should lead to more opportunities for the company

moving forward.

Tax Credit: Because of China ACM’s environmentally friendly products, the company has

certifications which provide tax exemptions, lowering their marginal tax rate to 15%. This

translates to a 6% value added to gross sales, which most of CACM’s competitors do not enjoy.

This advantage alone could conceivably lead to better economies of scale for the company.

Management Experience and Connections: The top management at CACM is highly connected to

the PRC government, and is also highly educated and experienced in the industry.

WEAKNESSES

No leverage: China ACM operates with virtually no long-term debt, resulting in an unnecessary

premium paid for financing new projects, such as new plants and equipment.

Buyer Power: Five customer orders consisted of 32.03% of the net sales of the Company for the

fiscal year ended June 30, 2009, and the loss of any of these three would depress net profit

considerably.

Dependence on sub-contractors and suppliers: China ACM depends on sub-contractors to

complete some of the work on projects, thus if China ACM were not able to find sub-contractors,

they would in turn not be able to bid on projects.

Heavy reliance on key managers and employees: While China ACM enjoys close business ties with

the Chinese government and other key industry players, these ties are dependent on a few

managers, whose turnover could adversely affect the company’s ability to get contracts. This is a

real threat, though several of the key managers mentioned are highly invested in CADC and are

thus not expected to leave the company.

16

OPPORTUNITIES

China accounts for half of all new building activity in the world and rapid expansion is expected to

continue to 2030 as up to 400 million citizens are expected to move into urban areas. China ACM

is well positioned to take advantage of this massive development.

Mergers and Acquisitions: Part of China ACM’s plans for expansion into the future involves taking

advantage of the challenges other small concrete manufacturers are facing by acquiring them at

attractive prices.

New Chinese legislation requires environmentally friendly concrete, as well as ready-mix. These

are two products which China ACM has already developed and used, so it provides an opportunity

for China ACM to continue its growth into the future

Vertical Integration and Economies of Scale: The company has stated that they plan to outsource

operations that it does not specialize in and also to optimize its economies of scale through more a

streamlined supply chain.

THREATS

Highly competitive industry: There are currently 127 concrete mixture stations in Beijing alone.

Not one company has more than 10% market share. This segmented market is a potential threat

to CACM as fierce competition threatens any company.

High-risk nature of construction, in terms of injuries, damaged property: With any industry come

inherent risks. The construction industry is no different. China ACM’s on-site operations render its

employees and other parties at risk.

Economic Downturn: In the event that the Chinese economy slows, demand for construction will

also decline. This would pose a problem for China ACM to continue to generate revenues, and

therefore profits.

RISKS ASSOCIATED WITH DOING BUSINESS IN CHINA

PRC Government: Policy changes can happen quickly and often without warning. The government

is involved in daily business operations beyond what is expected in Western nations, through the

joint channels of its regulations and state-owned enterprises. The state-owned organizations can

often set prices and exercise a high degree of control over its contractual engagements.

Legal Protection of Foreign Enterprises: Laws regarding the operation and ownership of foreign

enterprises in China are complex and, in many cases, very flexible at the discretion of the Chinese

government. For instance, Mergers and Acquisitions laws are very stringent in the advent of a

foreign firm taking over a domestic, Chinese firm.

Fluctuations in Exchange Rates: The Chinese government is under increased pressure from the

international community to allow its currency to “float,” thereby eliminating allegedly unfair trade

advantages. Generally, companies who do not import or export will have limited exposure to

currency risk.

17

PORTER’S FIVE FORCES

BARRIERS TO ENTRY: HIGH The sub-industry in which China ACM operates has and currently is experiencing a high rate of growth.

This in addition to the fragmented nature of the industry reflects a low barrier of entry. That being said, a

new company’s competitive efforts remain high in some key aspects.

The capital requirements to buy or build and then maintain a plant are extremely high.

Product differentiation is very difficult. Though standard mixtures of concrete exist, companies

need a differentiated product in order to compete effectively within the industry. China ACM

competes with companies with patents and innovative mixtures. The development of such a

product mix requires further research and development as well as patent protection.

Economies of scale create momentum that already-operating firms use to distance themselves

from young competitors may, who may not be able to match.

Government obstacles that the PRC has implemented, such as policies and standards for the

concrete manufacturing industry, only add to the obstacles an up-start would need to overcome.

SUPPLIER POWER: MODERATE For a concrete manufacturer operating within the same sub-industry as China ACM, the most important

raw material is cement. Cement in its most basic form is needed to then create the mixtures that a ready-

mix producer then sells.

The concentration of standard cement suppliers in China, and more specifically, the Beijing region,

is markedly high. This is a reflection of the fragmentation of the industry as a whole. Such a high

concentration of suppliers gives potential buyers the flexibility to find their raw materials

elsewhere, resulting in a low supplier power.

Another contributing factor to low supplier power is the shift in the concrete manufacturing

industry to recycled materials. Such a movement can only result in a decreasing supplier power

over time, as concrete producers begin to recycle and reuse their own raw materials.

Still, a steady supply of cement is an absolute necessity for a company operating in the industry.

Though supplier power may be dwindling due to recycling and high concentration, there remains

an ever growing demand for cement materials.

BUYER POWER: MODERATE China ACM supplies technical expertise and concrete to the contractors and sub-contractors who carry

out building projects primarily for the PRC government.

The competitive environment for these contracts is fierce, as there are many concrete

manufacturers vying for only a few jobs (though the number of jobs is growing). This low number

of buyers relative to sellers results in a high buyer power in the concrete manufacturing industry.

Several factors exist which limit this power.

18

o First is the importance of the product to the contractors. Just as raw materials are

necessary for concrete manufacturers, so is concrete to builders.

o In addition, added product differentiation within the concrete industry and specialized

projects leave the buyers with limited choices as to which type of concrete they would

need.

o One might also think that a contractor would be able to use multiple sources of concrete,

though in some cases, this is not possible, as the integrity of a building could be

compromised with inconsistent building materials.

THREAT OF SUBSTITUTES: MODERATE Because of the variety and sheer number of products and companies with which it competes, China ACM

is always vulnerable to substitutes to its products. It is necessary for the company to have many

safeguards against substitutes, both in pricing and quality.

China ACM, through its efforts to minimize average total cost of production, has become a low-cost

provider of ready-mix concrete.

In addition, the company’s patented formulas, technical expertise, and extended warranty offering

reinforce the quality of their products.

RIVALRY: HIGH Rivalry in the construction materials industry is intense.

Companies compete fiercely for contracts on the basis of price, quality, and expertise. Firms must

therefore maintain excellent standards of employee training, research and development, and

efficiency of operations in order to remain competitive.

IMPACT China ACM is already well-positioned to succeed in this competitive environment. The company recruits

its employees from China’s best industry-specific schools, maintains extremely close ties with top

innovators in concrete manufacturing, and already holds patents to the most advanced concrete formulas

in China. This, in addition to its superior profit margins and pricing abilities, will set China ACM apart

from a majority of its competitors.

Part of China ACM’s growth strategy is to acquire struggling companies at low prices. The intense rivalry

and fragmentation within the industry, therefore, will only further this agenda by making such companies

readily available. We believe that CADC has effective defenses against most of its industry’s hazards, and

will consequently be able to survive this hostile environment and perhaps even benefit from it.

19

Price Performance & News

1. China Advanced Con. Materials Gr. Inc Announces Exercise of Over-Allotment Option Monday, 22 Mar 2010 08:00am EDT

China Advanced Con. Materials Gr. Inc announced that it has closed the sale of an additional 300,000 shares of common stock at the recent public offering price of $4.60 per share for proceeds of $1,380,000, pursuant to the over-allotment option exercised by the underwriter in connection with the Company's public offering that closed on March 1, 2010. The exercise of the over-allotment option brings the total number of shares sold by China ACM in its registered public offering to 2,300,000 and the gross proceeds to $10.58 million. The Company plans to use most of the offering proceeds to purchase 2 additional portable concrete mixing plants as a part of its growth strategy. In addition, the Company intends to use a portion of the proceeds for working capital and general corporate purposes. Roth Capital Partners, LLC acted as the sole manager for the offering.

1. China Advanced Con. Materials Gr. Inc Appoints Jeremy Goodwin To Be Chief Financial Officer Monday, 22 Mar 2010 07:00am EDT

2. China Advanced Con. Materials Gr. Inc Receives New High-Speed Railway Contract

Tuesday, 2 Mar 2010 08:11am EST 3. China Advanced Con. Materials Gr. Inc Announces Pricing Of Common Stock Public Offering

Wednesday, 24 Feb 2010 09:20am EST

China Advanced Con. Materials Gr. Inc announced the pricing of its public offering of two million registered shares of common stock at a price of $4.60 per share. In addition, the Company has granted the underwriter a 30 day option to purchase an additional 300,000 shares at the public offering price of $4.60 per share to cover over allotments. The shares are being sold under the Company's previously filed shelf registration statement, which was declared effective by the U.S. Securities and Exchange Commission on January 11, 2010. The offering is expected to settle and close on March 1, 2010. The Company intends to use the net proceeds to purchase 2 additional portable concrete mixing plants with the balance allocated for working capital purposes. Roth Capital Partners was the sole underwriter for this transaction.

4. China Advanced Con. Materials Gr. Inc Appoints Jeremy Goodwin As President Monday, 25 Jan 2010 09:25am EST

China Advanced Con. Materials Gr. Inc announced the appointment of Jeremy Goodwin, to assume the newly created position as President of the Company, effective immediately. Mr. Goodwin has been a member of the Company's Board of Directors since October 4, 2008.

20

5. China Advanced Const. Mat. Grp Inc Awarded Two New Contracts Totaling Approximately $4.2 Million For Hangzhou-Ningbo Railway Monday, 2 Nov 2009 07:30am EST

6. China Advanced Const. Mat. Grp Inc Announces Approval Of NASDAQ Listing-First Call US Wednesday, 28 Oct 2009 07:37am EDT

First Call US reported that China Advanced Const. Mat. Grp Inc has received approval to list its common stock on the NASDAQ Global Market. The Company's shares are expected to commence trading on NASDAQ on November 2, 2009, and will continue to trade under the symbol 'CADC'.

7. China Advanced Const. Mat. Grp Inc Wins Contract To Supply Concrete For France's New Embassy In Beijing Thursday, 22 Oct 2009 07:30am EDT

8. China Advanced Const. Mat. Grp Inc Wins Two New Contracts For XiangGui Railway Totaling $3.9 Million Wednesday, 2 Sep 2009 09:02am EDT

China Advanced Const. Mat. Grp Inc announced that it has been awarded two contracts totaling $3.9 million to provide concrete manufacturing services for two sections of the XiangGui railway construction project. Upon completion, the XiangGui railway will run from Hengyang in Hunan to Pingxiang in the Guangxi Autonomous Region and will cover approximately 185 kilometers. This portion of the project is scheduled for completion in 2012. Upon completion, the XiangGui railway will run from Hengyang in Hunan to Pingxiang in the Guangxi Autonomous Region and will cover approximately 185 kilometers. This portion of the project is scheduled for completion in 2012.

9. China Advanced Const. Mat. Grp Inc Announces New Contracts Totaling $4.1 Million For Hangzhou-Ningbo Railway Thursday, 16 Jul 2009 11:47am EDT

China Advanced Const. Mat. Grp Inc announced that it has been awarded two new contracts to provide concrete manufacturing services for the Hangzhou-Ningbo railway construction project. Under the agreement, China ACM will supply 500,000 cubic meters of concrete and expects to complete the project by mid-2011.

10. China Advanced Const. Mat. Grp Inc Announces Termination Of Xiangsheng Norman Xu From President Role-Form 8-K Thursday, 25 Jun 2009 08:54pm EDT

China Advanced Const. Mat. Grp Inc reported in its Form 8-K that on June 19, 2009, Xiangsheng Norman Xu has been terminated as the Company’s President and removed as a Director of the Company, effective immediately. Until such time as a permanent replacement is identified, the Company’s current Chief Executive Officer, Xianfu Han, will serve as the Company’s Acting President.

11. China Advanced Const. Mat. Grp Inc Announces $3.3 Million Railway Contract Tuesday, 2 Jun 2009 09:02am EDT

China Advanced Const. Mat. Grp Inc announced that it has been awarded a new contract to provide ready-mix concrete for a major railway construction project in China. The Company will provide the concrete under its new manufacturing services business line, whereby the general contractor supplies the raw materials and the Company produces the ready-mix concrete. The contract is expected to generate approximately $3.3 million over a two year period.

21

COMPARATIVE RATIOS

DU-PONT MODEL - 2009 A Du Pont analysis of China ACM, relative to its peers, illustrates the company’s ability to achieve strong

returns for its shareholders. China ACM’s profit margin of 30% drives its impressively high Return on

Equity, which is expected to grow further as the company expands its high-margin services.

The company’s equity multiplier is deceptively high when considering that the firm holds no long-term

debt. Instead, the company maintains significant amounts of Accounts Payable, thus slightly inflating the

metric. It is our expectation that the equity multiplier will decrease in the future, again due to the

expansion of high-margin Manufacturing and Technical Services, which require few Accounts Payable.

Simultaneously, Total Asset Turnover will improve as the company’s utilization rates increase.

Overall, China ACM’s ROE is very high; especially in regards to its minimal leverage.

LIQUIDITY ANALYSIS China ACM’s ability to meet its short-term obligations, as measured against its peers, is healthy. Its 3-year

average falls roughly in between RMX and CRJI, with high and low liquidity respectively. Adjusting for

inventory does little to affect China ACM’s position—the company holds very little in inventory. CADC’s

close relationship with general contractors and other state owned organizations has allowed it to have

unusual control over its liquidity.

Profit

Margin

Equity

Multiplier

Total Asset

Turnover

Return on

Equity

China ACM 30.4% 1.87 0.71 40%

CRJI 6.9% 2.99 0.72 15%

CSGJ 5.7% 1.28 0.31 2%

RMX -50.1% 1.66 1.24 -

LG 6.6% 2.35 0.40 6%

EXP 6.9% 2.49 0.56 10%

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.

China ACM 1.26 1.24 1.04 1.18 1.20 1.22 1.01 1.15

CRJI 0.36 0.54 1.08 0.66 0.32 0.36 0.93 0.54

CSGJ 2.48 2.55 0.80 1.94 1.19 1.29 0.25 0.91

RMX 2.48 2.55 0.80 1.94 0.83 2.44 2.34 1.87

LG 1.10 0.86 1.24 1.07 0.82 0.61 0.92 0.78

EXP 0.49 0.47 1.61 0.86 0.19 0.23 0.88 0.43

Current Ratio Quick Ratio

22

FIXED COVERAGE CHARGES AND PREPAYMENTS

China ACM makes extensive use of lease arrangements and short-term debt, creating a cash flow concern.

However, the company has so far been adequately able to cover its fixed charges, even going so far as to

make use of prepayment arrangements.

China ACM’s prepayments are akin to factoring, wherein the company’s receivables are substituted for

lease and rent payments. This arrangement would not be possible were it not for the company’s special

relationships with its customers and clients.

Rent payments for the next five years amounted to $6,055,289. Currently, China ACM has prepaid a

majority of this, to the amount of $4,417,287. Thus, the burden of fixed charges is lifted considerably.

DEBT MANAGEMENT China ACM, as most Chinese companies, is extremely conservative regarding the use of debt. The

company has never held long-term debt, nor would a Chinese bank customarily offer it (this is discussed

in more detail under “Pro Forma”). Therefore, China ACM makes use of revolving amounts of short-term

debt, primarily to cover working capital requirements.

As of 2009, China ACM’s D/E ratio reflects the company’s tendency to pay off short-term debt as quickly

as possible. It should be noted that, since China ACM bears no long-term debt, all growth will be financed

internally and through equity, denying shareholders a leveraged position.

As noted above in “Fixed Charge Coverage,” China ACM is able to cover its interest obligations, despite its

expensive short-term debt (17%). Historically, the company’s short-term debt has not exceeded 15% of

the company’s capital structure.

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.China ACM 0.87 1.01 3.03 1.64 0.47 0.50 0.75 0.57

CRJI 1.99 2.10 2.45 2.18 0.67 0.68 0.71 0.68

CSGJ 0.28 0.33 2.96 1.19 0.22 0.25 0.75 0.41

RMX 0.66 0.49 0.58 0.58 0.40 0.33 0.37 0.37

LG 1.35 1.77 1.34 1.49 0.58 0.64 0.57 0.60

EXP 1.49 1.76 0.78 1.34 0.60 0.64 0.44 0.56

Debt/Equity Debt/ Assets

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.

China ACM 17.67 41.34 4.89 21.30 1.87 2.01 4.03 2.64

CRJI 3.30 161.08 2.97 55.78 2.99 3.10 3.45 3.18

CSGJ 57.36 5.15 5.44 22.65 1.28 1.33 3.96 2.19

RMX - - - - 1.66 1.49 1.58 1.58

LG 1.98 2.91 5.04 3.31 2.35 2.77 2.34 2.49

EXP 3.15 7.85 57.05 22.68 2.49 2.76 1.78 2.34

Times Interest Earned Equity Multiplier

23

ASSET MANAGEMENT China ACM’s asset management is roughly in line with its peers. China ACM is smaller and operates at

higher margins than its larger foreign counterparts, Lafarge and Eagle Materials. We expect the Total

Asset Turnover and Fixed Asset Turnover to increase in the future as utilization on the company’s fixed

plants increases. Also, the company’s prepayments are accounted for as assets, which understate the

performance of income-generating assets.

Inventory management should also improve as the company makes greater use of its portable mixing

stations (which do not use inventory). The dramatic decrease in inventory turnover between 2008 and

2009 is a direct result of a temporary ban on construction within the Beijing area during the Olympics.

During this period, China ACM focused on expanding its geographic footprint through Manufacturing and

Technical Services.

Due to China ACM’s extensive dealings with the Chinese government, its average collection period is

significantly longer than its peers. However, this risk is mitigated by greatly reduced collection risk.

Furthermore, China ACM’s special arrangements with its customers and clients allow the company to use

its receivables as rent and lease payments (see above “Fixed Payment Coverage and Prepayments”).

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.China ACM 0.71 0.73 0.81 0.75 1.80 1.65 2.67 2.04

CRJI 0.72 0.59 0.67 0.66 1.07 0.79 0.99 0.95

CSGJ 0.31 1.37 1.41 1.03 0.61 4.42 3.75 2.93

RMX 1.24 1.54 1.67 1.48 2.15 2.53 2.94 2.54

LG 0.40 0.47 0.62 0.50 0.95 1.12 1.48 1.19

EXP 0.56 0.67 0.95 0.73 0.90 1.06 0.93 0.97

Fixed Asset TurnoverTotal Asset Turnover

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.

China ACM 141.73 5.74 4.64 50.70 2.58 63.58 78.73 48.30

CRJI 18.63 29.54 11.41 19.86 19.60 12.35 31.98 21.31

CSGJ 372.25 100.35 57.02 176.54 0.98 3.64 6.40 3.67

RMX 14.42 7.72 6.29 9.47 25.32 47.30 58.04 43.56

LG 60.75 52.59 48.92 54.09 6.00 6.94 7.55 6.83

EXP 71.32 54.09 43.47 56.29 5.11 5.23 5.58 5.31

Inventory Period Inventory Turnover

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.

China ACM 3.36 2.94 1.70 2.67 108.59 124.01 214.48 149.03

CRJI 7.17 13.05 9.22 9.81 50.90 27.96 39.60 39.48

CSGJ 3.46 15.10 10.90 9.82 105.35 24.17 33.50 54.34

RMX 8.86 8.99 9.80 9.22 41.19 40.60 37.24 39.67

LG 9.43 8.20 7.00 8.21 38.72 44.49 52.12 45.11

EXP 13.61 11.91 11.90 12.47 26.83 30.65 30.66 29.38

Receivables Turnover Average Collection Period

24

PROFITABILITY China ACM’s profitability metrics show a healthy, growing company relative to its less nimble Chinese

peers and its large foreign counterparts. The company’s high profit margins set it apart from its rivals and

highlight the value of its competitive advantages. China ACM operates in a corner of the industry that is

protected by significant barriers to entry, such as technological expertise and government relations. This,

accompanied by the company’s strategic entry into high-margin value-added services (e.g. Manufacturing

and Technical), have driven the company’s outperformance.

China ACM’s participation in the Chinese government’s ambitious plan to build the world’s largest

network of high-speed rails is an important near and mid-term driver.

The company’s return on assets is also impressively high, between two and four times its competitors.

This trend is expected to continue, though the company’s recent capital expenditures to expand capacity

may temporarily return ROA to 2007-2008 levels.

Again, return on equity remains very high relative to its unlevered capital structure.

Note that RMX has been posting negative earnings.

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.China ACM 30% 19% 18% 23% 38% 25% 22% 28%

CRJI 7% 17% 3% 9% 7% 24% 11% 14%

CSGJ 6% 46% 8% 20% 12% 15% 16% 14%

RMX -50% -5% 2% -18% -27% 0% 8% -6%

LG 7% 10% 12% 10% 26% 28% 28% 27%

EXP 7% 13% 22% 14% 13% 20% 32% 22%

Net Profit Margin Gross Profit Margin

2009 2008 2007 3 yr. avg. 2009 2008 2007 3 yr. avg.China ACM 21% 14% 15% 17% 40% 27% 60% 43%

CRJI 5% 10% 2% 6% 15% 32% 6% 17%

CSGJ 2% 63% 12% 26% 2% 85% 46% 44%

RMX - - - - - - - -

LG 3% 5% 8% 5% 6% 13% 18% 12%

EXP 4% 9% 21% 11% 10% 24% 37% 24%

Return on Assets Return on Equity

25

PRO FORMA

GENERAL ASSUMPTIONS

Concrete prices and input costs will hold at mid-year 2010 levels.

Projections carry out to 2013 because of the unpredictable nature of a small, high-growth

company’s decisions.

The company will not engage in Mergers and Acquisitions through 2013, despite management’s

stated desire to grow inorganically in the future.

2007 2008 2009 2010E* 2011E 2012E 2013ERevenue

Concrete Sales 21,082,534 27,565,044 28,118,492 70,406,518 91,528,473 109,834,168 126,309,293

Manufacturing Services - - 7,053,728 12,937,456 23,800,000 27,200,000 30,600,000

Technical Services - - 1,924,089 4,959,310 6,000,000 7,000,000 8,000,000

Mixer Rental - - 2,618,493 1,921,280 1,164,675 - 3,446,776

Marketing Cooperation - - - 495,592 599,590 699,522 799,453

Sales of Materials - - - 570,740 - - -

Total Revenue 21,082,534 27,565,044 39,714,802 91,290,896 123,092,738 144,733,690 169,155,523

Cost of Sales

Concrete 16,393,134 20,799,398 20,657,312 65,580,024 84,663,838 98,850,751 116,836,096

Manufacturing Services - - 2,768,255 7,641,626 14,280,000 16,320,000 18,360,000

Technical Services - - 147,418 271,998 1,200,000 1,400,000 1,600,000

Mixer Rental - - 945,057 181,716 110,156 - 325,999

Marketing Cooperation - - - 94,122 113,873 132,852 151,831

Sales of Materials - - - 478,086 - - -

Total Cost of Sales 16,393,134 20,799,398 24,518,042 74,247,572 100,367,867 116,703,603 137,273,926

Gross Profit 4,689,400 6,765,646 15,196,760 17,043,324 22,724,871 28,030,086 31,881,597

Total Selling, General and Admin. 1,273,415 1,946,541 1,717,794 4,104,562 4,307,044 4,579,628 5,927,995

Income from Operations 3,415,985 4,819,105 13,478,966 12,938,762 18,417,828 23,450,458 25,953,602

Other Income

6% VAT Subsidy 1,264,952 1,586,192 2,109,290 5,000,638 6,919,708 8,222,050 9,414,558

Non-Operating Income/Expense 14,494 (79,312) 602,020 - - - -

Interest Expense, Net (797,378) (149,419) (802,650) (770,482) (1,233,010) (1,444,074) (1,547,033)

Total Other Income 482,068 1,357,461 1,908,660 4,230,157 5,686,698 6,777,976 7,867,524

Income Before Taxes 3,898,053 6,176,566 15,387,626 17,168,919 24,104,526 30,228,434 33,821,127

Provision for Income Taxes - 1,012,382 2,115,097 2,575,338 3,615,679 4,534,265 5,073,169

Net Income 3,898,053 5,164,184 12,068,489 14,593,581 20,488,847 25,694,169 28,747,958

Dividends and Accretion on Convertible Stock: 33,387 1,229,473 1,319,398 - - -

Net Income avail. to Common Shareholders: 5,130,797 10,839,016 13,274,183 20,488,847 25,694,169 28,747,958

Shares Outstanding: - - 17,000,000 18,300,000 18,700,000 18,700,000

EPS - - 0.78$ 1.12$ 1.37$ 1.60$

* First-half of 2010's figures reflect actual revenues, the second half (E) are those figures doubled.

China Advanced Construction Materials Pro Forma Income Statement

26

On February 2nd, 2010, China ACM released financial data for the first half of its fiscal year 2010, and

revenue for those 6 months has already exceeded revenue from the entire fiscal year of 2009. Our Pro

Forma Income Statement is, for the most part, based on specific details regarding the company’s revenue-

generating assets.

NOTES In 2009, China ACM’s utilization neared capacity, prompting the company to double its maximum output

via lease agreements.

Estimates for 2010 are derived from doubling the 1st half of fiscal year 2010 (this method is supported by

historical data, though it slightly understates full-year revenue).

REVENUES AND COSTS

CONCRETE SALES

REVENUES

China ACM’s sub-industry has grown at 25% annually throughout the past decade. In 2011, we assume

the company’s competitive advantages will allow it to increase sales an additional 5% by capturing

market share. We assume competitors will soon enter the market, and as such Concrete Sales growth will

decline from 30% to 15% between 2011 and 2013.

Currently, the industry for ready-mix concrete is highly fragmented, consisting mostly of operators who

are unable to capitalize on the recent changes in the concrete market, such as the tax environment and

technological needs. As China transitions into a modern, developed country, we assume the use of ready-

mix concrete will reflect the developed world’s standard.

From an asset-based perspective, this growth comes from the company’s new plants, operating at 60%

capacity in 2010. We assume that China ACM will increase its utilization rate up until 2012, when its

plants will reach capacity, thus prompting it to expand capacity by 73% in 2013. This increase will return

the company’s plants to the same ratio of utilization-to-capacity as in 2011.

2010 2011 2012 2013 Utilization 2.9 3.8 4.5 5.2 Capacity 4.9 4.9 4.9 6.8

Growth 2011 2012 2013

30% 20% 15%

27

COSTS

Raw materials and transportation costs are relatively volatile. In 2009, China ACM enjoyed substantially

lower costs related to cheap fuel. Fuel and input costs have rebounded in 2010, which decreased margins.

We have made the assumption that current fuel and material costs will remain high for the near future,

using 1st-half 2010’s cost ratios.

Labor costs are flat relative to the quantity of concrete produced, though China ACM does hire larger

numbers of skilled technicians than competitors.

China ACM’s management has suggested that the cost of selling concrete is 90% of revenue. We have

modified this assumption slightly. In the first half of 2010, when utilization rates were very low, the gross

profit margin was 7% rather than 10%, as management stated. In 2011, we assume higher utilization

rates will increase margins to 8.5%. These economies of scale will again increase the gross margin to

10% in 2012. An expansion of capacity in 2013 will return the gross margin to 2011 levels, mirroring the

ratio between capacity and utilization for those years.

2010 2011 2012 2013 Utilization 60% 77% 92% 77% Gross Margin 7% 8.5% 10% 8.5%

MANUFACTURING SERVICES

REVENUES

China ACM’s High-Speed Rail contracts

are a steadily growing source of high-

margin income for the company. To the

right is a chart of China ACM’s publicly

disclosed rail project pipeline.

Management has stated that half of

these projects will be completed by the

end of 2010, and the rest by 2011.

In 2009, China ACM had 9 portable

mixing stations. By the time the 2nd

quarter of 2010 was reported, the firm

had 12 portable mixing stations.

Management has indicated that they

will add another two mixing stations by the end of 2010. We have conservatively assumed that China

ACM will add two more mixing stations every year, meaning that the company will have 18 portable

mixing stations operational by 2013.

Management comments and revenue analysis indicate that the portable mixing stations have $1,700,000

average annual revenue per unit, with a 4-year payback period and 20% IRR.

28

Growth : 2 units per year, or $1,700,000 * 2 = $3,400,000

COSTS There is a $3,000,000 one time startup cost, which is amortized over the 10-year life of the unit, as well as

a $100,000 redeployment cost. The general contractors supply all raw materials, while China ACM

provides the portable mixing station, personnel, and equipment. This arrangement dramatically

improves margins. Management has stated that all the costs associated with the portable mixing stations

sum up to 60% of its revenues. Thus:

Gross Margin : 40%

TECHNICAL SERVICES AND MARKETING COOPERATION

REVENUES

Management has said that a single Technical Services contract lasting one year can bring in an average of

$1,000,000 in revenue. Historical data suggests that China ACM adds one new contract per year, thus:

Growth : One new contract per year, or $1,000,000

Marketing Cooperation is essentially a referral fee. Revenues have been about 10% of the revenues

derived from technical services.

Growth : Pegged to Technical Services at $100,000 per year

COSTS

The technicians and sales engineers who carry out the consulting work are paid their salary, travel

compensation, and commission.

Although historical data suggests the gross margin on Technical Services hovers around 95%, China

ACM’s President and CFO, Jeremy Goodwin, has stated that the company’s target gross margin on these

services is 80% moving forward. We have accepted management’s suggestion and kept costs at 20% of

revenue for this service. Marketing Services’ costs are also maintained at 20% of revenue. Thus:

Gross Margins : 80%

MIXER RENTAL

REVENUES

These revenues are based on renting-out equipment that is not being utilized. The company’s capacity, as

noted earlier, is at 60% in 2010, leaving some equipment to be rented for a fee. As utilization increases,

less equipment is available for rent, and thus revenues decline. Our assumption (noted above) is that as

utilization rates increase there will be less equipment to rent out.

Given that utilization will approach maximum capacity in 2012, there will be no equipment to rent out

that year. The new capacity gained in 2013 will, however, allow the company to once more rent out

29

equipment, returning rental revenue to the same proportion as achieved in 2011. 2010’s figures suggest

that, per 1 million cubic feet of free capacity, China ACM derives approximately $1,000,000 of revenue

from Mixer Rentals. Thus:

all revenues approximate

2010 2011 2012 2013

Extra Capacity 2 mi. cu. meters 1.1 .4 1.4 Rental Revenues $1,921,280.00 $1,164,675 $0 $4,221,052

COSTS

Costs associated with this service have been roughly 9.5% of rental revenue, a figure that we carried

forward. This figure includes maintenance of the equipment.

Gross Margin : 90.5%

SELLING, GENERAL, AND ADMINISTRATIVE These costs consist of administration-related expenses and leases on operating space, including its offices

and factories. Costs associated with China ACM’s reverse merger, various equity issuances, and other

legal fees have been historically included in this figure. These costs are not carried forward in our

assumption.

SG&A in previous years roughly correlates to China ACM’s total capacity. Since the company nearly

doubled its capacity in 2010, SG&A saw a similar increase. SG&A will remain roughly flat between 2010

and 2012, but will increase in 2013 to mirror the expansion of capacity.

Not including factory lease expense, SG&A costs have historically been 4.5% of total revenues. This

expense is added to future lease expenditures (derived directly from the company’s 1st-half 2010 10-Q).

FACTORY LEASES China ACM entered into four new 5-year leases in the fourth-quarter of 2009, greatly increasing the size

of its fixed lease payments. This reality changes, however, by the end of 2012. The plant capacity that

China ACM acquired in 2010 will be fully utilized, necessitating more capacity. Thus, China ACM will take

out another series of plant leases for 2013 (increasing capacity by roughly 73%).

INTEREST EXPENSE All of China ACM’s debt is short-term debt, reflecting Chinese preference for conservative capital

structure. Despite doubling revenues between 2007 and 2009, China ACM spent roughly the same

amount ($800,000) in both 2007 and 2009. This is attributable to China ACM’s interest income-

generating activities, which are expected to continue, and the company’s recently volatile capital

structure. By mid-year 2010, China ACM had no debt on its books.

For our assumptions, we decided that China ACM would continue to use short-term financing for working

capital needs, despite new equity issuances and management’s conservative tendencies. Interest is

calculated as a percent of Income from Operations in 2010.

30

VALUE-ADDED TAX AND PROVISION FOR INCOME TAXES The value added tax, for which China ACM is eligible due to their use of recycled materials and energy

efficiency, is calculated as 6% of Concrete and Manufacturing Services Sales. In other words, the 6% VAT

subsidy does not apply to all of China ACM’s business. This subsidy is added to China ACM’s revenue’s

before the final provision for taxes.

China ACM does not expect to lose this subsidy as the parameters for eligibility are the company’s core

competency.

Income taxes are calculated at 15% of taxable income. The normal statutory rate in China is 25%, but

again due to China ACM’s environmental commitments and high-tech efficiency, the company is eligible

for a reduction. Like the VAT subsidy, China ACM does not expect to lose this subsidy due to the

assumption that China ACM’s business will continue to meet this tax-break’s requirements.

PREFERRED STOCK ACCRETION AND DIVIDENDS China ACM pays out dividends on its Class-A preferred convertible stock. At the beginning of 2010 there

were approximately 875,000 preferred convertible shares outstanding. By the end of the 1st half of that

year, there were roughly 500,000 preferred shares outstanding. We took this rate of conversion and

applied it to the rest of 2010, meaning that there would be approximately 250,000 preferred shares

outstanding by the end of 2010, and no preferred convertibles left after 2011. By extension, the company

will cease to pay out dividends after 2010.

SHARES OUTSTANDING It is customary among Chinese companies to be financed mostly through equity. China ACM is no

different, as exemplified by the fact that the company has no debt and recently raised over $10 million

with a stock issuance less than one year ago. By mid-year 2010, the company had roughly 15.5 million

common shares outstanding, 875,000 preferred convertibles worth 4 common shares each, and

approximately 1,000,000 warrants (worth 2 common shares) outstanding. Our assumptions, based on

historical conversion rates, find all preferred shares and warrants converted by 2013.

All figures approx., and expressed in common shares

2010 2011 2012 2013

Common Shares Outstanding

17,000,000

18,300,000

18,700,000

18,700,000

Convertible Shares Outstanding 1,000,000 -

-

-

Warrants Outstanding

1,000,000

700,000

400,000

-

31

DISCOUNTED CASH FLOW MODELS

EBIT

Our earnings before interest and taxes are derived directly from the Pro Forma Income Statement.

CASH-BACK FROM SUBSIDIES We believe that China ACM’s subsidy advantages are significant enough to warrant its inclusion in our

DCF model. Again, this subsidy is 6% of Concrete and Manufacturing Sales. Cash from this subsidy is

taxed as if it were operating income.

1 – TAX

As above, the statutory rate is 25%, but China ACM’s rate is 15%.

DEPRECIATION

Depreciation was calculated as the sum of the previous year’s depreciation and the depreciation of all

newly-acquired assets. All assets have a 10-year operating life, and all currently held assets will have a

life beyond 2013, with none completely depreciating until after that year.

2007 2008 2009 2010E 2011E 2012E

EBIT 3,415,985$ 4,819,105$ 13,478,966$ 12,938,762$ 18,417,828$ 23,450,458$

Cash-back from subsidies 1,264,952 1,586,192 2,109,290 5,000,638 6,919,708 8,222,050

Total Pre-Tax Income 4,680,937 6,405,297 15,588,256 17,939,400 25,337,536 31,672,508

1 - Tax - 0.85 0.87 0.85 0.85 0.85

Depreciation 1,091,740$ 1,178,745$ 2,184,462$ 2,673,266$ 3,850,453$ 5,044,955$

Change in Captial Expenditure - 8,835,344 7,567,768 9,156,431 11,771,865 11,945,021

Change in Net Working Captial - 2,544,035 2,114,777 2,489,652 4,216,924 2,869,590

Free Cash Flow to the Firm - (4,756,132)$ 6,063,700$ 6,275,673$ 9,398,569$ 17,151,975$

FCFF Growth - - - 3% 50% 82%

Weighted Average Cost of Capital - - - 26.0% 24.0% 22.0%

Discounted Cash Flow - - - 2,795,407$ 6,806,584$ 10,433,129$

Terminal Growth *2010 is calculated as half a year

Terminal WACC

Terminal Value

Discounted Terminal Value

Discounted Cash Flows Shares Outstanding 15.5M

Net Debt Target Price 6.96$

Firm Value Margin of Safety 24%

Discounted Cash Flow Model

107,942,907$

31,699,609$

151,616,357$

1,839,000$

3%

74,404,298$

18%

32

Ko 26%

We 1

Wd 0

Ke 26%

Kd 17%

β 1.73

rm 17%

rf 4.5%

1-tax 0.85

WACC Calculation

CHANGE IN CAPITAL EXPENDITURE

Capital Expenditures were calculated using the same assumptions we made related to our Pro Forma

sales figures. The company must expand capacity and output by CapEx on two main business units: the

fixed plants, or Concrete Sales, and the portable mixing stations, or Manufacturing Services. Note that

CapEx does not include factories, as those assets are acquired through lease arrangements.

Each Portable Mixing Station costs $3,000,000. 3 new stations were bought in 2010, and our assumption

is that two more will be bought each year thereafter.

Correlated to the factory’s utilization is the need for trucks and fixed mixing stations. 1 million cubic

meters of output is related to approximately $7,200,000 in capital expenditures.

CHANGE IN NET WORKING CAPITAL

Net Working Capital was calculated on a historical basis as a percent of total revenues, about 13.2%.

WEIGHTED AVERAGE COST OF CAPITAL China ACM’s capital structure is, as noted above, very conservative, and has pushed up the company’s

WACC considerably. By midyear 2010, China ACM held no debt, and the company has never held long-

term debt. Despite the fact that short-term debt is commonly rolled over, this money is used primarily to

fund working capital.

The company’s beta, 1.7, was calculated using CADC’s weekly stock price returns relative to the S&P 500

since August of 2009. We derived the market return for our risk premium calculation from Ibbotson’s

Morningstar SBBI Classic Yearbook, which stated a 17% arithmetic mean return for small-cap companies

since the Great Depression.

TERMINAL GROWTH RATE We decided to use a terminal growth rate of 3% rather than China’s average GDP growth of roughly 10%.

This assumption is in line with the GDP growth of a fully developed nation, which China will eventually

become.

STYLIZED DCF MODEL Our assumptions in this model focus on our industry analysis and historical growth in Free Cash Flow.

2010-2013 : The company’s position as the market leader of a high-growth industry, combined with recent EBIT growth of roughly 180%

(2008-2009), warrants our use of a high growth rate for these early years. We decided to use 20%, a rough average of what we believe to be

China ACM’s Free Cash Flow growth during those years.

2014-2020 : As China ACM’s operations scale up and the Chinese government’s stimulus packages slow down, the company’s Free Cash Flow

growth rate will slow. We felt that using China’s GDP growth rate, roughly 10%, was appropriate for these years.

2020+ : As in our terminal growth rate in the previous DCF model, we decided that China’s growth will eventually slow to that of a typical

developed nation, roughly 3%.

REVERSE STYLIZED MODEL Paired with the Stylized DCF Model, the Reverse Model illustrates the market’s expectations for China ACM’s growth. Instead of ending with

a projected stock price, the Reverse model starts with the current stock price and solves for the FCFF growth rates. We used the “Solver”

function in Microsoft Excel for this calculation.

The analysis revealed that the stock’s current price ($5.60) reflects FCFF growth of 17% from 2010-2013, 13% growth from 2014-2020, and

3% growth into perpetuity. The significant difference between the stock’s implied growth and our expected growth helps to clarify the

investment decision. China ACM’s growth prospects are clearly undervalued.

Year WACC Growth Discounted CF2010-2013 26%, 24%, 22%, 20% 20% 25,822,022$

2014-2020 18% 15% 39,360,883

2020+ 18% 3% 35,381,108

Sum of Discounted Cash Flows: 100,564,013$

Net Debt: 1,839,000

Firm Value: 102,403,013$

Shares Outstanding: 15,500,000

Stock Price: 6.61$

Margin of Safety 18%

Stylized DCF Model

Year WACC Growth Discounted CF

2010-2013 26%, 24%, 22%, 20% 17% 24,110,424$

2014-2020 18% 13% 32,806,340

2020+ 18% 3% 28,044,227

Sum of Discounted Cash Flows: 84,960,991$

Net Debt: 1,839,000

Firm Value: 86,799,991$

Shares Outstanding: 15,500,000

Stock Price: 5.60$

Reverse Stylized DCF Model

RELATIVE MULTIPLE VALUATION Our relative multiple valuations focused on Price to Earnings and Price to Book multiple—we excluded Price to Sales because, unlike some

peers, China ACM has had positive earnings.

The enterprise multiple of EBITDA illustrates that one pays less for China ACM’s EBITDA relative to its peers. In fact, most of the multiples

indicate that CADC is currently priced below its realizable value. The revenue multiple, however, indicates that China ACM is slightly more

expensive than its peers. This premium is compensated for by CADC’s dramatically higher operating and profit margins.

China ACM is a much smaller company than either Lafarge or Eagle Materials, its two foreign peers. CADC’s growth is, predictably, much

higher than either of those two companies—and yet China ACM is priced cheaper. We attribute this fact to CADC’s very limited institutional

ownership and analyst coverage (CADC has only been listed on the NASDAQ since November, 2009).

Overall, the multiples above indicate that CADC is highly undervalued for the company’s growth and profitability.

*in mi l l ions of dol lars Enterprise Value as a Multiple of:

MV Equity

Enterprise

Value

Book

Value

Diluted

EPS REV EBITDA

Net

Income

Trailing

EPS

Book

Value Sales

CRJI 21.28 25.66 25.81 0.04 0.46x 7.81x 6.66x 5.53x 0.82x 0.38x

CSGJ 31.03 40.26 35.38 0.97 0.49x 1.28x 1.43x 1.10x 0.88x 0.38x

RMX 8.08 13.36 13.11 (3.55) 0.49x - - - 0.62x 0.30x

LG 15,402 29,197 16,800 2.77 1.84x 11.04x 27.91x 14.72x 0.92x 0.97x

EXP 1,270 1,550 449.23 0.81 3.24x 16.31x 43.26x 35.45x 2.83x 2.66x

China ACM 70.55 69.75 36.73 0.77 1.01x 3.38x 6.89x 6.97x 1.92x 1.02x

Median 50.79 55.01 36.06 0.79 0.75x 7.81x 6.89x 6.97x 0.90x 0.68x

Mean - - - - 1.25x 7.97x 17.23x 12.75x 1.33x 0.95x

China ACM 70.55 69.75 36.73 0.77 1.01x 3.38x 6.89x 6.97x 1.92x 1.02x

MV Equity as a Multiple of:

Valuation Multiples of Comparable Construction Materials Companies

2005 2006 2007 2008 2009 Weight Values

CADC - - - - 6.4 65% 4.16

CRJI - - - 4.1 5.6 20% 1.12

CSGJ - - - 0.3 0.3 - -

RMX 14.7 12.8 18.1 - - - -

LG 12.1 14.5 13.5 5.4 8.5 5% 0.54

EXP 15.3 10.4 12.7 22.1 32.1 5% 0.93

Industry - - - - 22 5% 1.10

S&P 500 17.3 16.8 16.5 10.9 18.6 - -

Weighted P/E: 7.85

Target Price: 6.13$

Margin of Safety 9%

Historical P/E Multiples

Relative P/E

Valuation

PRICE TO EARNINGS China ACM has, as noted above in “Competitors,” very few directly comparable companies. Price to

Earnings data is not available for the State Owned Enterprises, nor is it reliably available for China Runji

Cement or China Shuangji Cement, China ACM’s domestic peers. Ready-Mix Inc., too, has problems

regarding its P/E data, in that RMX has posted negative earnings for two years straight. Lafarge and Eagle

Materials have consistent Price/Earnings data, though we decided to use their 5-year averages. They are

also less relevant to China ACM

due to their size and diverse

operations.

We acknowledge that China ACM’s

relative multiple valuations are

less relevant due to the absence of

proper competitive market data.

Furthermore, CADC has no

historical price-to-earnings

multiples with which to formulate

a future valuation.

China ACM’s P/E is roughly equivalent to its domestic peer, China Runji Cement (CRJI), which is far less

profitable and enjoys fewer growth prospects. Nevertheless, China Runji’s P/E is more relevant to our

valuation than its larger, foreign peers. We attributed China ACM’s current P/E ratio and CRJI’s ratio with

the highest weight, and distributed the rest among Lafarge, Eagle, and the overall industry. Again, it

should be noted that China ACM is cheap relative to its developed peers—indicating a future appreciation

in market value as the company matures and becomes better known in the investment community.

PRICE TO BOOK China ACM’s P/B ratios may be

slightly overstated due to the

company’s use of non-

capitalized lease arrangements

versus capitalized assets. It is

testament to China ACM’s

growth prospects that it, Lafarge,

and Eagle Materials have similar

P/B ratios, despite China ACM’s

unlevered capital structure.

2005 2006 2007 2008 2009 Weight Values

CADC - - - - 1.8 55% 0.99

CRJI - - - 1.3 0.7 20% 0.14

CSGJ - - - 0.2 0.5 5% 0.03

RMX 2.2 1.5 0.9 0.2 0.8 5% 0.04

LG 1.3 1.9 2.1 0.6 1.2 5% 0.07

EXP 5 3.9 3.5 1.9 2.5 5% 0.17

Industry - - - - 1.7 5% 0.09

S&P 500 2.8 2.9 2.7 1.7 2.2 - -

Weighted P/B: 1.52

Target Price: 6.54$

Margin of Safety 17%

Historical P/B Multiples

Relative P/B

Valuation

36

CONCLUSION AND FINAL VALUATION

QUALITATIVE

o The industry shows no sign of slowing—the Chinese

government is positioning its infrastructure for the 21st

Century.

o The company has a substantial moat

Communist Party executives

Position as “the” ready-mix provider for the

Government’s projects

Difficult-to-attain tax exemptions.

QUANTITATIVE

o We believe the Discounted Cash Flow Model is our most

effective.

Pro-Forma assumptions were carefully made with

revenue-generating asset assumptions

o Our “Reverse” Stylized Model shows that the market

attributes CADC with FCFF growth rates that it will most

likely exceed.

2007 2008 2009 2010E 2011E 2012E

EBIT 3,415,985$ 4,819,105$ 13,478,966$ 12,938,762$ 18,417,828$ 23,450,458$

Cash-back from subsidies 1,264,952 1,586,192 2,109,290 5,000,638 6,919,708 8,222,050

Total Pre-Tax Income 4,680,937 6,405,297 15,588,256 17,939,400 25,337,536 31,672,508

1 - Tax - 0.85 0.87 0.85 0.85 0.85

Depreciation 1,091,740$ 1,178,745$ 2,184,462$ 2,673,266$ 3,850,453$ 5,044,955$

Change in Captial Expenditure - 8,835,344 7,567,768 9,156,431 11,771,865 11,945,021

Change in Net Working Captial - 2,544,035 2,114,777 2,489,652 4,216,924 2,869,590

Free Cash Flow to the Firm - (4,756,132)$ 6,063,700$ 6,275,673$ 9,398,569$ 17,151,975$

FCFF Growth - - - 3% 50% 82%

Weighted Average Cost of Capital - - - 26.0% 24.0% 22.0%

Discounted Cash Flow - - - 2,795,407$ 6,806,584$ 10,433,129$

Terminal Growth *2010 is calculated as half a year

Terminal WACC

Terminal Value

Discounted Terminal Value

Discounted Cash Flows Shares Outstanding 15.5M

Net Debt Target Price 6.96$

Firm Value Margin of Safety 24%

Discounted Cash Flow Model

107,942,907$

31,699,609$

151,616,357$

1,839,000$

3%

74,404,298$

18%

2007 2008 2009 2010E 2011E 2012E

EBIT 3,415,985$ 4,819,105$ 13,478,966$ 12,938,762$ 18,417,828$ 23,450,458$

Cash-back from subsidies 1,264,952 1,586,192 2,109,290 5,000,638 6,919,708 8,222,050

Total Pre-Tax Income 4,680,937 6,405,297 15,588,256 17,939,400 25,337,536 31,672,508

1 - Tax - 0.85 0.87 0.85 0.85 0.85

Depreciation 1,091,740$ 1,178,745$ 2,184,462$ 2,673,266$ 3,850,453$ 5,044,955$

Change in Captial Expenditure - 8,835,344 7,567,768 9,156,431 11,771,865 11,945,021

Change in Net Working Captial - 2,544,035 2,114,777 2,489,652 4,216,924 2,869,590

Free Cash Flow to the Firm - (4,756,132)$ 6,063,700$ 6,275,673$ 9,398,569$ 17,151,975$

FCFF Growth - - - 3% 50% 82%

Weighted Average Cost of Capital - - - 26.0% 24.0% 22.0%

Discounted Cash Flow - - - 2,795,407$ 6,806,584$ 10,433,129$

Terminal Growth *2010 is calculated as half a year

Terminal WACC

Terminal Value

Discounted Terminal Value

Discounted Cash Flows Shares Outstanding 15.5M

Net Debt Target Price 6.96$

Firm Value Margin of Safety 24%

Discounted Cash Flow Model

107,942,907$

31,699,609$

151,616,357$

1,839,000$

3%

74,404,298$

18%

37

Concrete Sales Technical Services

APPENDIX

Water Cube Cost: $136 Million

Construction launched in

December of 2003

One of ten wonders rising on

the skyline of New China

Finance District Commercial complex

comprising two office

towers, a shopping plaza,

a hotel, and service

apartments

Concrete Volume:

100,000 cubic meters

Beijing Airport The world’s ninth busiest

airport

Covers more than one

million square meters

CCTV Tower

Concrete Volume: 120,000

cubic meters

One of ten wonders rising

on the skyline of the New

China

Size: occupies 550,000

square meters

American Embassy Largest overseas U.S.

embassy in the world

Constructed: 2004-2008

Concrete Volume: 40,000

Cubic Meters

China ACM: exclusive

provider of concrete

Olympic Stadium Bird’s Nest Seats 100,000 spectators

Construction launched in

December 2003

Cost: $479 Million

One of ten wonders rising on

the skyline of the New China

South Rail Station Largest railway station in

Asia

Construction from 2007-

2010

Cost: $863 million

Concrete Volume: 500,000

cubic meters

Center for Performing Arts Cost: $424 Million

Concrete Volume: 350,000

cubic meters

One of ten wonders rising on

the skyline of the New China

38

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2009 AND 2008

2009 2008

ASSETS CURRENT ASSETS: Cash $ 3,634,805 $ 1,910,495 Restricted cash 453,192 913,092 Marketable securities 71,880 61,767 Notes receivable 10,799 -

Accounts receivable, net of allowance for doubtful accounts of $120,986 and $224,924, respectively 11,815,402 9,365,486 Inventories 1,216,014 237,836 Other receivables 3,845,186 505,968 Prepayments 4,255,326 3,240,394 Total current assets 25,302,604 16,235,038 PLANT AND EQUIPMENT, net 22,089,717 16,730,220 OTHER ASSETS:

Accounts receivable (non-current), net of allowance for doubtful accounts of $328,563 and $411,061

respectively 4,132,706 4,753,006 Long term prepayments 4,794,746 - Total other assets 8,927,452 4,753,006 Total assets $ 56,319,773 $ 37,718,264

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES: Short term loans $ 4,512,200 $ 4,271,222 Accounts payable 10,722,741 6,293,553 Customer deposits - 165,434 Other payables 352,880 254,259 Other payables - shareholder 806,946 880,302 Accrued liabilities 593,057 145,207 Taxes payable 3,048,179 1,073,237 Total current liabilities 20,036,003 13,083,214 Total liabilities 20,036,003 13,083,214 COMMITMENTS AND CONTINGENCIES

REDEEMABLE CONVERTIBLE PREFERRED STOCK ($0.001 par value, 851,125 shares issued and

outstanding as of June 30, 2009 and 875,000 shares issued and outstanding as of June 30, 2008), net

of discount for the amount of $567,581 and $1,168,548 as of June 30, 2009 and 2008, respectively 6,241,419 5,831,452 SHAREHOLDERS' EQUITY:

Preferred stock $0.001 par value, 1,000,000 shares authorized, 851,125 issued and outstanding as of

June 30, 2009, and 875,000 shared issued and outstanding as of June 30, 2008 and classified outside

shareholders' equity (see above), liquidation preference of $8.00 per share and accrued dividends as

of June 30, 2009 and June 30, 2008 - - Common stock, $0.001 par value, 74,000,000 shares authorized, 10,595,500 and 10,525,000 shares 10,596 10,525

39

issued and outstanding, as of June 30, 2009 and June 30, 2008, respectively Paid-in-capital 12,987,417 12,722,260 Contribution receivable (1,210,000 ) (1,210,000 ) Deferred compensation - (27,708 ) Retained earnings 12,783,892 3,257,276 Statutory reserves 2,765,179 1,452,779 Accumulated other comprehensive income 2,705,267 2,598,466 Total shareholders' equity 30,042,351 18,803,598 Total liabilities, redeemable preferred stock and shareholders' equity $ 56,319,773 $ 37,718,264

See report of independent registered public accounting firm.

The accompanying notes are an integral part of these consolidated financial statements.

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

2009 2008 REVENUE Sales of concrete $ 28,118,492 $ 27,565,044 Manufacturing services 7,053,728 - Technical services 1,924,089 - Mixer rental 2,618,493 - Total revenue 39,714,802 27,565,044 COST OF SALES Concrete 20,657,312 20,799,398 Manufacturing services 2,768,255 - Technical services 147,418 - Mixer rental 945,057 - Total cost of revenue 24,518,042 20,799,398 GROSS PROFIT 15,196,760 6,765,646 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,717,794 1,946,541 INCOME FROM OPERATIONS 13,478,966 4,819,105 OTHER INCOME (EXPENSE), NET Other subsidy income 2,109,290 1,586,192 Non-operating expense, net (602,020 ) (79,312 ) Interest expense, net (802,650 ) (149,419 ) TOTAL OTHER INCOME, NET 704,620 1,357,461 INCOME BEFORE PROVISION FOR INCOME TAXES 14,183,586 6,176,566 PROVISION FOR INCOME TAXES 2,115,097 1,012,382 NET INCOME 12,068,489 5,164,184 DIVIDENDS AND ACCRETION ON REDEEMABLE CONVERTIBLE PREFERRED STOCK 1,229,473 33,387

40

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 10,839,016 5,130,797 RECONCILIATION OF COMPREHENSIVE INCOME: Net Income 12,068,489 5,164,184 Unrealized gain (loss) from marketable securities 20,605 (12,482 ) Foreign currency translation adjustment 86,196 1,951,026 COMPREHENSIVE INCOME $ 12,175,290 $ 7,102,728

EARNING PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERS Weighted average number of shares: Basic 10,526,719 9,064,359

Diluted 14,032,479 9,255,616

Earnings per share: Basic $ 1.03 $ 0.57

Diluted $ 0.86 $ 0.56

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,068,489 $ 5,164,184 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 2,184,462 1,178,745 Amortization of long term deferred expense 179,463 - Bad debt expense, net of recovery (189,052 ) 443,171 Amortization of deferred compensation expense 107,477 5,542 Changes in operating assets and liabilities Accounts receivable (13,681,007 ) 1,561,399 Inventories (977,200 ) 211,569 Other receivables (3,347,936 ) 1,109,454 Prepayment 419,258 (2,825,219 ) Accounts payable 4,403,314 (2,933,778 ) Customer deposits (166,114 ) 156,125 Other payables 97,849 108,430 Accrued liabilities 291,597 (80,851 ) Taxes payable 1,970,528 1,012,153 Net cash provided by operating activities 3,361,128 5,110,924 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, and equipment (1,771,915 ) (8,701,026 ) Net cash used in investing activities (1,771,915 ) (8,701,026 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short term loans 8,247,950 3,925,075 Payments for short term loans (8,024,538 ) (5,906,096 ) Payments on other payables - Shareholder (73,889 ) - Restricted cash 459,900 (913,092 ) Proceeds from issuance of redeemable preferred stock - 6,397,500 Proceeds from capital contribution - 100

41

Proceeds from advances by shareholder - 873,020 Preferred dividends paid (472,851 ) - Net cash provided by financing activities 136,572 4,376,507 EFFECTS OF EXCHANGE RATE CHANGE IN CASH (1,475 ) (300,793 ) INCREASE IN CASH 1,724,310 485,612 CASH, beginning of year 1,910,495 1,424,883 CASH, end of year $ 3,634,805 $ 1,910,495

42

WORKS CITED 10k. SEC. Web. Apr. 2010. <www.sec.gov>.

8k. SEC. Web. Apr. 2010. <www.sec.gov>.

Agoracom. Web. Apr. 2010. <http://agoracom.com/ir/chinaacm>.

Benway, Stuart J. "GICS Sub-Industry Summary: Construction Materials." Standard and Poor's

NetAdvantage. Web.

<http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/cp/companyIndustr

yPage.do>.

Central Intelligence Agency. CIA. Web. Apr. 2010. <https://www.cia.gov/library/publications/the-world-

factbook/geos/ch.html>.

China Advanced Construction Materials Group. Web.

Corporate Executives & Directors Search Directory. Forbes.com. Web. 12 Apr. 2010.

<http://people.forbes.com/profile/weili-he/18259>.

Honore, Hugues. Yahoo. Associated Press, 3 Apr. 2010. Web. Apr. 2010.

<http://news.yahoo.com/s/afp/20100404/ts_afp/uschinaforexfinanceyuan_20100404033835>.

Morningstar. Web. Apr. 2010. <http://quote.morningstar.com/stock/s.aspx?t=cadc>.

OpenCRS. 11 Dec. 2009. Web. Apr. 2010. <http://opencrs.com/document/RL33534/2009-12-

11/?24290>.

The Peoples Republic of China. Ministry of Railways. Web. <http://www.china-mor.gov.cn/>.

Scully, Vaughan. "Global Industry Survey: Construction and Engineering, Asia." (2007). Standard & Poor's

NetAdvantage. Web.

<http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/i/showGlobalIndustr

ySurvey.do?abbr=ceg>.

Tao, Kun. "China Advanced Construction Materials." Roth Capital Partners, LLC. Web.

Yahoo Finance. Web. Apr. 2010. <http://finance.yahoo.com/q?s>.

43