Profit warning of Rmb7.2bn loss in 2012
MCC announced worse-than-expected loss in 2012Given the company reported Rmb186m loss in H112, the full year result wouldsuggest c.Rmb7bn loss in H2. MCC attributed the loss mainly to: 1) Rmb3.9bn lessin profit from disposals of Huludao Nonferrous Metals; 2) Rmb3.1bn estimatedloss from West Australia SINO Iron ore project; 3) Rmb2.3bn less in profit fromCape Lambert Iron Ore project provisions; and 4) loss from polysilicon production.
Hard lessons learned from overseas diversificationAs its traditional E&C business, in particular design & research operationcontinues to deliver good performance, MCC’s setback mostly come from itsresource business, a diversification strategy it pursued several years ago.Unfortunately, risks such as cost overrun, repeated delay in production scheduleand volatilities in metal prices, all seemed not well managed and thus backfired.
Asset disposal should help a clean start in 2013We believe the asset disposal of loss-making operations and provisions for severaloverseas mines should help pave the way for earning recovery in 2013 and beyond.We are confident that MCC remains competitive in its core business of metallurgicprojects design and construction, and its property segment keeps doing well.
Valuation: price target of HK$1.35, SellOur price target of HK$1.35 is derived from a target PE of 7.1x.