Company preannounce Rmb1.04bn loss for 3Q15Angang preannounced a Rmb888mn net loss for 1~3Q15(1~3Q14: Rmb923mn), implying -Rmb0.123/sh; in 3Q15, netlosses hit Rmb1.043bn, largely in line with our expectations.
Trends to watch
Sharp earnings decline due to 3Q15’s lower steel price;heavier pressure on cash flow. In 3Q15, China’s steel pricedropped further due to weak demand; the iron ore priceremained stable, leading to a share decline in GP/t of steelproducts. In 3Q15, we expect Angang’s GP/t to fall ~Rmb200QoQ with a net loss/t of ~Rmb200, heavily pressuring OCF.4Q15 earnings face downside risk. Since October, the fall ofsteel prices has slowed slightly and gradually stabilized, but theloss-making situation has yet to change; if steel prices remainlow in 4Q15, earnings will face QoQ downside risk.Cash flow’s key role amid sluggish sector; watchproduction cut/suspension or bankruptcy. Given thesector’s recent large losses (steel stab price in Hebei Valuation and recommendation
Trim 2015e & 2016e earnings from Rmb325mn &Rmb446mn to a loss of Rmb1.95bn & profit ofRmb12mn. It is expected to take more reform measures toavoid losses in 2016. Angang-A/-H is now trading at 0.80x/0.47x2015e P/B. We slightly cut A-share TP by 4.3% to Rmb4.4and maintain target P/B at 0.7x (avg. P/B range over the past fiveyears); and cut our H-share TP by 22.5% to HK$3.1,implying 0.4x P/B. Maintain HOLD.
RisksRecovery of macro economy; FAI disappoints.