Initiate at BUY with 22% upside to our 0.5x P/BV-based HKD2.00 TP. We prefer it to Angang (347 HK; HKD4.84; SELL) because of its higher earnings leverage to a recovery in industry margins with rising rail way profit s as support.
Losses in 1Q14 are turning to profit in 2H14E on lower iron ore costs and rising railway sales volumes where it has a market leading 45% share. Maanshan also recently acquired a French company with expertise in high speed railway wheels.
Maanshan is benefi t ting from a surge in China’s railway spending, which is driving a 25% Yo Y rise in its rail way business GP to CNY1.58b in 2014E (22% of GP), and helping offset the adverse impact of the weak property market.