Strong 9M16 results beat both DBe and market consensus
Angang announced its 9M16 results after market close on 26 Oct. Angangreported a revenue of RMB41bn, down 1% YoY and a NPAT of RMB977m, cf.loss making of RMB887m in 9M15. The strong results beat both DBe andmarket consensus for achieving 96% FY16DBe and 125% Bloombergconsensus. Considering that Angang has announced a preliminary 9M16results on 14 Oct already, we believe the results should be a non-event.
GP in line with market momentum, SG&A down 17% YoY
Angang’s GP in 3Q16 came in at RMB2.26bn, slightly lower than that in 2Q16at RMB2.34bn. The profitability momentum well followed market steel spreadswe tracked. The concurrent HRC steel spread slightly declined fromRMB1,381/t in 2Q16 to RMB1,281/t in 3Q16. In 3Q16, Angang managed tokeep its SG&A low at RMB903m, up 7.5% QoQ, but down 10% YoY. OverallSG&A in 9M16 fall to only RMB2,593m, down 17% YoY.
Neutral outlook on profitability in 4Q16, Hold maintained
Considering construction activity should remain resilient till early 4Q16, webelieve Angang’s 4Q profitability should remain stable. Based on Angang’s3Q16 results, the annualized return on equity for Angang is c.6%. Given thatAngang is trading at 0.6x PB, we believe positive profitability should be in theprice already. Hold reiterated.