Strong 2Q, in line with DBe, beat market consensusAngang announced 1H16 results after market closed on 29 August. Thecompany’s revenue was RMB25.4bn, down 12% YoY and up 7% HoH,achieving 46% of FY16 DBe and 48% of Bloomberg consensus. Its 1H16 NPATcame in at RMB300m, cf. RMB155m in 1H15 and RMB4.7bn loss in 2H15. AsAngang has announced preliminary earnings on 7 July, we believe the resultsshould be a non-event. Hold maintained.
　　GP improved RMB365/t HoH in 1H16, in line with the marketAlbeit a slight 1% HoH decline in sales volume to 9.61mt, Angang’s GP unitimproved c.RMB365/t HoH, driven by c.RMB200/t ASP increase andc.RMB165/t production cost cut. This was in line with market HRC concurrentspread improvement. The company also managed to cut SG&A to RMB1.7bn,down 16% HoH. Considering that average QTD HRC spreads is c. RMB1295/t,profitability of Angang in 3Q should be only slightly weaker than that in 2Q,better than 1Q.
　　Mediocre outlook, trimmed TP to HK$4.25
　　Low inventory, better than expected demand and lower utilization rate of BFs,these factors culminated record steel spread in April. Though the steel spreadhas been declined since then, but is stable in 3Q at c. RMB1200~1300/t, c.
　　RMB100/t lower than the average spread in 2Q16. We believe the steel mills’
　　profitability may only slightly dropped in 3Q but remain our concerns onuncertainty of profitability in 4Q. We set the company’s target price based onmiddle-cycle PBx at 0.62x since 2012. As the company’s ROAE in 2016E is c.
　　2.3%, we consider this multiple is fair. Hold maintained. Major risks: significantChinese macro policy.