1Q16 results disappointed
Maanshan announced its 1Q16 results after market close on 27 March 2016.The company recorded a revenue of RMB9.2bn, achieving 19% of FY16 DBeand 22% of Bloomberg consensus. Maanshan’s 1Q16 NPAT was a net loss ofRMB348mn. Relative to FY16 DBe NPAT at RMB980mn and FY16 Bloombergconsensus NPAT estimate at RMB1.341bn net loss, we think Maasnhan’sresults should be disappointing.
Decreased sales volume and less losses QoQ
Maanshan’s sales volume remained weak in 1Q16. Crude steel sales volumeand steel products sales volume were 4.35mt and 4.16mt, down 3% YoY and4% YoY, respectively. As average benchmark HRC and rebar spreads in 1Q16improved by RMB250/t and 83/t respectively, Maanshan’s gross profit turnedfrom negative RMB833m in 4Q15 to positive RMB754m in 1Q16. However, thecompany was still unable to generate net profits. Maanshan also recorded animpairment loss of RMB471m. We need further explanation on its impairmentloss as steel price and iron ore price climbed in 1Q16. Maanshan’s net gearingdecreased from 84% to 79% during 1Q16.
Benefit from short-term restocking cycle; Hold maintained
We remain cautious on China steel industry for mid to long term as we havenot yet seen any significant capacity rationalization. We believe the currentrestocking cycle will peak out in June, highlighted in the report “When will thiscyclical recovery peak out” published on April 15, 2016. Maanshan is currentlytrading at 0.65x 12-month forward PBx and likely the QoQ improvementalready in the price. Our HK$2.04 TP is derived from PBx of 0.7x (peak of cyclesince 2012). Hold maintained.