2012 results in line
2011 revenue was Rmb221.1bn (-4% YoY), with an Rmb7bn net loss attributable to shareholders, implying EPS of -Rmb0.36, in line with preannouncement.
Impairment provisions totale d Rmb15.77bn, up Rmb14bn from last year .
Revenue slid slightly: All businesses fell except property (+22%). GM slid 0.2ppt YoY to 11.7%: overall GM increased 0.85ppt YoY to 13.29%, excluding the losses from Huludao, Sinosico and SINO. The value of new contracts sig ned in 2012 fell 6% YoY to Rmb26.55bn but improved QoQ in 4Q12 and the magnitude of full-year decline narrowed.
Operating cash flow improved significantly. 2012 recorde d net operating cash flow of Rmb4.39b, a marked improvementfrom 2011’s -Rmb12.63.
20% earnings rise pr eannounced for 1Q13. After making several provisions, separating the loss-making Huludao subsidiary and suspending polysilicon production, the company looks in good shape now. It pre-announced a 20% earnings increase for 1Q13 (~Rmb1.04bn). Management guidance for 2013 is a net profit of Rmb4~5bn.
Raise earnings forecast and TP for MCC-H
Raise 2013e earnings 20% to Rmb3.9bn, or Rmb0.20/sh; set 2014e at Rmb4.5bn, or Rmb0.24/sh. The A-share is trading at 10x 2013e P/E and the H-share at 6x. The company should begin reaping the benefits of business transition.
We upgrade MCC-H to ACCUMULATE and raise TP by 11% to HK$1.75, indicating 17% upside potential. Maintain HOLD onMCC-A given its unappealing valuation.
Risks
Uncertain settlement at Sino iron ore project in Western Australia as the accumulated costs exceed the contracted value.