3Q11 results missing expectations
In 3Q11, revenue rose 19.5% YoY to Rmb55.9bn, net profitattributable to shareholders fell 18.4% YoY to Rmb630mn, or Rmb0.03/sh.
Stable revenue growth. Operating revenue expanded by 19.5% YoY to Rmb55.9bn, mainly thanks to: 1) solid growth in contracted projects (revenue of metallurgical engineeringprojects +17%); and 2) polysilicon saw higher production capacity compared with the same period last year.
Gross margin declined by 0.9ppt QoQ, mainly due to higher material and labor costs in 3Q and QoQ reduction in polysilicon price. However, gross margin edged up 0.5ppt YoY on a low base last year.
Financial expense rate grew 0.9ppt since interest expense increased on higher interest-bearing liabilities. Interest-bearing liabilities increased by Rmb26.5bn (29.3%) since the beginning of the year.
New contracts rose 16.6% YoY to Rmb55.06bn in 3Q11 and 1~3Q new contracts totaled Rmb182.6bn, up 6.6% YoY.
Valuation and recommendation
MCC-A currently trades at 13.8x/13.4x 2011e/2012e P/E, andMCC-H at 6.4x/6.2x 2011e/2012e P/E. Looking ahead, we believe the metallurgic engineering market can hardly recover near term, and there are uncertainties on expanding the non-metallurgic market, we downgrade the company from “ACCUMULATE” to “HOLD”. And set the 12-month TP for MCC-H at HK$1.7, implying 6x 2012e P/E. Potential stock catalysts include overseas mineral resources put into production.
Risks
Slower investment in infrastructure and metallurgical projects; risk from international business.