1H13 results miss expectations
In 1H13, revenue -12.9% YoY to Rmb91 bn. Net profit attributable turned around YoY and reached Rmb1.48bn or Rmb0.08/sh, missing expectations. The missed results were mainly due to inventory impairment and foreign exchange losses. Revenue down YoY. The 12.9% YoY revenue fall in 1H13 was mainly attributable to the large declines in th e construction and manufacturing sectors.
Revenue from construction and equipment manufacturing businesses declined 14.8% and 25.6%, while those from property and resources development businesses rose 30.1% and 0.5%.
GM up 0.9ppt to 10.2%, with those of construction and equipment up 1.0ppt and 1.6ppt to 10.0% and 8.4%; and those of resource development and property businesses down 14.4ppt and 0.1ppt to -0.8% and 14.0%.
Inventory impairment and foreign exchange losses the main culprits for 1H’s miss. Rmb200mn of inventory impairment losses thanks to the drop in nickel prices, and Rmb620mn of foreign exchange losses in 1H13 were the main reasons that 1H13 results missed forecasts.
Operating cash flow improved YoY, but net gearing ratio remained high. In 1H13, operating cash outflow was Rmb4.1bn, but 2Q13 saw a clear YoY improvement and recorded a net cash inflow of Rmb2.45bn. Net gearing ratio expanded 9ppt compared with early 2013 to 193%.
Trends to watch
New construction orders down. In 1H13, new orders fell 11% YoY to Rmb110bn, including Rmb6.88bn of overseas orders. Metallurgical new orders declined ~20% YoY to ~Rmb40bn.
Earnings revisions
Considering the stabilized exchange rate and MCC’s improving operations, we maintain our 2013/14 earnings forecasts of Rmb3.9bn/Rmb4.5bn or an EPS of Rmb0.20/Rmb0.24.
Valuation and recommendation
MCC-A/-H are trading at 8.6x/5.3x 2013e P/E and 0.7x/0.5x 2013e P/B. We cut MCC-H’s TP by 11% to HK$1.56, implying 6x 2013e P/E, considering the uncertain profitability of the resources sector and tightening liquidity conditions. Maintain ACCUMULATE for MCC-H; MCC-A’s valuation is not attractive, maintain HOLD.