FY2015 results in line with expectation
Angang announced its FY15 results on PRC GAAP basis after market close onMarch. 31st. Angang recorded a revenue of RMB52.8bn in FY15, achieving101% DBe and 97% Bloomberg consensus. FY2015 NPAT was RMB4,593mnnet loss, while DBe was RMB4,375mn net loss and Bloomberg consensus wasRMB4,375mn net loss. As Angang has announced a profit warning in Jan 29th,we believe the results should be non-event to Angang’s share price.
Sales volume shrank, profitability deteriorated
In 2015, Angang produced and sold total steel products of 18.9mt, down 6%YoY and 19.1mt, down 4% YoY. Profitability in 2015 significantly deteriorated,as average HRC steel spreads in China dropped by c.RMB345/t in 2015.Angang’s whole year average gross profit per tonne was RMB173/t, decreasedby RMB247/t. (ASP declined by RMB934/t and unit cost fell by RMB684/t)Without cutting SGA and financing cost significantly, Angang’s bottom linesignificantly eroded. As such, company’s book value shrank to RMB43bn,down 9.5% YoY accordingly as of 2015 year end.
Increasing net gearing, financing structure skewed to short-term
Angang’s net gearing ratio climbed from 54% as of 2014 year end to 58% as of2015 year end. Its debt structure further skewed to short-term when short/ultrashort-term financing note have replaced long-term bond as an importantfinancing method. As of 2014 year end, Angang’s short-term debt accountedfor 80.7% total debt and this ratio went up to 97% as of 2015 year end.
Challenges remain, Sell maintained
We remain cautious view on China steel industry, as we see no significantimprovements in demand/supply balance. Considering Angang’s shrinkingbook value, current trading price of HK$3.48 at trailing PBx of 0.5x or 12monthforward PBx of 0.54x does not look cheap. Our HK$2.4 TP is derived from PBxof 0.33x (at toughs of cycle since 1999).