9M16 results in line with both DBe and market consensus
Maanshan announced its 9M16 results after market close on 27 Oct.Maanshan reported a revenue of RMB33bn, down 5% YoY and a NPAT ofRMB759m, cf. loss making of RMB2.6bn in 9M15. The results were in line withboth DBe and market consensus for achieving 77% FY16DBe and 78%Bloomberg consensus. Considering that the company has announced a profitwarning on 11 Oct already, we believe the results should be a non-event.
Sales volume slightly improved QoQ; GP in line with market momentum
Maanshan’s sales volume in 3Q16 reached 4.46mt, slightly improved 3% QoQ,but still down -8% YoY. The company’s GP in 3Q16 dropped to RMB1.2bn,from 2Q16 at RMB1.96bn. This result well followed market steel spread wetracked, which was c.RMB100/t lower than that in 2Q16. In terms of 4Q16,Maanshan forecast a stable steel and raw material market.
Neutral outlook on steel spread in 4Q16, Hold maintained
Considering construction activity should remain resilient till early 4Q16, webelieve Maanshan’s 4Q profitability should remain stable. Based onMaanshan’s 3Q16 results, the annualized return on equity for Maanshan isc.6%. Given that Maanshan is trading at c.0.7x PB, we believe positiveprofitability should be in the price already. Hold reiterated.