Maanshan’s 1Q14 results missed DBe and Bloomberg consensus
Maanshan announced 1Q14 PRC GAAP results after market closed today . Itincurred a net loss of RMB446m vs net loss of RMB385m in 1Q13. The resultmissed DBe FY14 NPAT of RMB617m, or Bloomberg cons ensus FY14 NPAT ofRMB389m , mainly due to lower -than-expected revenue achievement .
Revenue shrinking as ASP and volume dropped
Maanshan’s revenue went down by RMB4b YoY/QoQ respectively toRMB13.6b. Both production volume and ASP dropped significantly, bringingdown 1Q14 revenue to reach only 19%/18% of FY14 DBe/Bloombergconsensus estimate. We estimated that its ASP decreased by 19% YoY, or by7% QoQ, at a greater extent compared to domestic average HRC/rebar pricedown by 16%/10% YoY, or by 2%/5% QoQ . Maanshan’s COGS declined in linewith revenue, by 23% YoY/21% QoQ, and thus maintaining its GPM at 3.2% vs3.8% in 1Q13 or 4.2% in 4Q13.
Near term steel demand/price pressure expected; maintain Hold
We noted that recent property sold/started (GFA) started to slow down or evendecline YoY according to NBS/Sofun statistics. We are concerned that propertysales should further decelerate, and put pressure on near-term steeldemand/prices. Maanshan is currently trading at 0.42x DBe 2014E BVPS - thelow end of two-year trading range and even lower than its 1-sd below averagePBx . Considering its earnings pressure yet undemanding valuation, wemaintain Hold for Maanshan.