20-30% earnings decline in line with UBS expectation
MCC issued a profit warning of 20-30%YoY decline in NPAT in 2011, fromRmb5,321m NPAT (EPS Rmb0.28) in 2010. This compares to street consensus ofRmb4,023m (-24%YoY) and UBSe of Rmb3,841m, or EPS Rmb0.20, -28%YoY.
Nonferrous metal smelting and processing cited as the main reasonThe 51.06% owned Huludao Nonferrous Group, which is MCC’s major arm ofnonferrous metal smelting and processing business, continue to be loss-making dueto low processing fees and dropping metal prices. Zinc price averaged US$1,908/tin Q411 compared with US$2,221 in Q3, which probably triggered some inventoryloss. We noticed Huludao Zinc (000751.SZ), which is 38.2% held by HuludaoNonferrous Group, also issued a profit warning of cRmb980m loss in 2011,implying cRmb700m loss in Q411.
Other non-E&C businesses not strong eitherIt should not be surprising to see property is cited for earnings decline in 2011. Webelieve MCC’s revenue from commercial housing has declined in 2011 whilesocial housing revenue has risen but with lower margins. Besides, we believe thepoly silicon business had a much weaker H2 than H1.
Valuation: Neutral with PT of HK$1.90We use SOTP methodology, applying: EV/EBITDA multiple of 6.3x to E&Cbusiness, 6.9x to equipment manufacturing, as well as NAV calculation of itsresource and property development segments.