Angang made RMB888m loss for 9M15 according to the profit warning
Angang announced a 9M15 result warning after market close on Oct 14. For9M15, the company made a net loss of RMB888m. Relative to RMB923m netprofit of last year (9M14) and Bloomberg consensus of 2015 full year NPAT atRMB335m. The company’s 9M15 bottom-line should be a significantdisappointment to the consensus. We believe the profit warning should createshare pressure.
Angang’s 3Q15 losses reflected well very poor steel (HRC) spreads in 3Q15
For 3Q15 alone, Angang made a loss of RMB1043m. Angang made RMB136mNPAT in 2Q15. In 3Q15, per tonne average HRC spread (steel price minus rawmaterial costs) has shrunk about RMB250/t QoQ. With a production volumeabout 5mt a quarter, Angang’s NPAT indeed should have shrunk c. RM1000mQoQ. Angong also commented about RMB98m losses should be attributed toexchange losses in 3Q15. The significant loss in 3Q15 should be largelyexplained by the narrowed steel spreads in 3Q15.
Currently trading at 0.4x and steel price is poised to rebound
Angang is currently trading at 0.4x 2015DBe BVPS, a valuation level close tohistorical lows. Meanwhile, steel prices are also at very low levels and wellpoised to rebound once there will be any demand pick-up resulting from recentChina government stimulus. As such, we believe it is very likely Angang’sshare price weakness triggered by its profit warning will be short-lived. Wemaintain our Buy rating on Angang on the back of low valuation andanticipating more China stimulus.