20150831-DBS_Group-鞍钢股份-00347.HK-1H15_results_below,_but_cheap_valuation_offers_favourable_risk-reward_11页_360kb
报告摘要
Angang Steel Research Summary - DBS Group (31 August 2015)
Core Content Overview
This document provides a detailed financial analysis and investment recommendation for Angang Steel, a state-owned enterprise (SOE) that is a dominant player in the flat-steel industry. The report compares the performance of Angang's H shares and A shares, highlighting their respective valuations, earnings forecasts, and market dynamics. The DBS Group analysts have revised their earnings forecasts due to weaker-than-expected steel demand and pricing, while maintaining a BUY rating for H shares and a HOLD rating for A shares.
Key Financial Highlights
1H15 Results
- Net Profit: Plunged by 73% YoY to RMB155 million.
- Sales Revenue: Fell by 24% YoY to RMB28,998 million.
- Steel ASP: Declined by 18% YoY to RMB3,091 per ton.
- Sales Volume: Decreased by 7% YoY to 9.4 million tons.
- Gross Profit Margin: Increased by 1.5ppts to 11.9%, supported by a 20% drop in unit production costs.
- SG&A as % of Sales: Rose by 2.4ppts to 7.3%.
- Net Profit Margin: Declined to 0.5%.
- ROAE: Dropped to 0.6%.
Earnings Forecasts and Valuation
Earnings Forecasts
| Metric | 2013A | 2014A | 2015F | 2016F |
|---|---|---|---|---|
| Revenue (RMB m) | 75,329 | 74,046 | 53,794 | 53,794 |
| EBITDA (RMB m) | 6,197 | 6,835 | 5,332 | 5,670 |
| Net Profit (RMB m) | 770 | 928 | 294 | 512 |
| EPS (RMB) | 0.11 | 0.13 | 0.04 | 0.07 |
| EPS Growth (%) | N/A | 20.5 | -68.3 | 74.0 |
| Pre-tax Profit | 728 | 1,579 | 457 | 795 |
Valuation Metrics
| Metric | H Shares | A Shares |
|---|---|---|
| Price Target (HK$) | 5.73 (55% upside) | 4.99 (1% downside) |
| PE (X) | 74.8 | 124.2 |
| P/Cash Flow (X) | 2.7 | 3.6 |
| P/Free CF (X) | 4.4 | 7.1 |
| EV/EBITDA (X) | 6.8 | 9.5 |
| Net Dividend Yield (%) | 0.3 | 0.6 |
| P/Book Value (X) | 0.5 | 0.5 |
| Net Debt/Equity (X) | 0.3 | 0.4 |
| ROAE (%) | 0.6 | 1.1 |
Investment Thesis
- Company Profile: Angang is a SOE and a leading flat-steel producer, offering products such as HRC, CRC, medium and heavy plates, galvanized steel, and silicon steel.
- Rationale for Earnings Cut: The revised forecasts reflect lower steel profitability expectations, as the company expects Chinese steel demand to recover slowly in 4Q due to supply glut and lower steel selling prices.
- Valuation Adjustment: The H share price target was reduced to HK$5.73, reflecting a lower P/BV of 0.7x compared to the previous 0.85x. The A share price target was set at RMB4.99, based on 0.76x FY15F P/BV, which is 9% above the H share target valuation.
- Current Valuation: Angang-H is trading at 0.45x FY15F P/BV, close to the 2008 GFC trough valuation, indicating an attractive buying opportunity.
- Potential Catalyst: A stimulus package in China to boost the economy could provide a positive impact on the steel industry, particularly on Angang's high-end product mix.
Key Assumptions
- Steel ASP (RMB/t): Revised to RMB2,861/t for FY15F from RMB3,408/t.
- Sales Volume (Mt): Revised to 18.8Mt for FY15F from 19.4Mt.
- Output of finished steel products (Mt): Expected to remain stable at 18.9Mt in FY15F and FY16F.
Peer Comparison
| Company | Price (Local$) | Market Cap (US$m) | PE (X) | P/BV (X) | EV/EBITDA (X) |
|---|---|---|---|---|---|
| Angang-H | HK$3.69 | 3,445 | 74.8 | 0.46 | 6.8 |
| Angang-A | RMB5.05 | 5,705 | 124.2 | 0.8 | 9.5 |
| Magang-H | HK$1.81 | 1,798 | 20.6 | 0.56 | 9.0 |
| Magang-A | RMB3.48 | 4,185 | 39.1 | 1.3 | 16.9 |
| Wuhan Iron & Steel (A) | RMB4.55 | 7,172 | 20.3 | 1.2 | 7.4 |
| Hebei Iron & Steel (A) | RMB4.93 | 8,175 | 56.0 | 1.2 | n.a. |
| China Steel | TT$19.3 | 9,455 | 18.1 | 1.0 | 9.8 |
| Posco | KS$187,000 | 13,886 | 11.2 | 0.4 | 6.0 |
| Hyundai Steel | KS$53,100 | 6,035 | 6.9 | 0.5 | 5.9 |
| Tata Steel | IN$225.8 | 3,324 | 9.1 | 0.7 | 7.0 |
| Steel Authority of India | IN$51.8 | 3,243 | 15.3 | 0.5 | 11.4 |
| Jsw Steel | IN$921.15 | 7,272 | 12.1 | 0.9 | 6.3 |
| Jindal Steel & Power | IN$67.4 | 935 | 17.9 | 0.3 | 8.2 |
| Nippon Steel & Sumitomo Metal | JP$257.8 | 20,242 | 9.1 | 0.8 | 6.3 |
| Kobe Steel | JP$168 | 5,058 | 9.2 | 0.8 | 5.6 |
Investment Recommendations
- H Shares: Maintain BUY rating with a revised price target of HK$5.73, representing a 55% upside.
- A Shares: Maintain HOLD rating with a revised price target of RMB4.99, representing a 1% downside.
Risk Factors
- Steel Prices Risk: Oversupply in the industry may continue to suppress steel selling prices.
- Input Costs: Weaker-than-expected input costs (e.g., iron ore, coking coal) could further impact profitability.
Valuation Comparison
- Angang-H is currently trading at 0.45x FY15F P/BV, close to 2008 GFC trough valuation.
- Angang-A is trading at 0.8x FY15F P/BV.
- The A-H valuation gap is consistent with the 9% premium in the new price target.
Summary of Key Points
- Earnings Cut: FY15/16F earnings are reduced by 67% and 54%, respectively, due to lower steel profitability.
- Valuation: Angang-H is undervalued, while Angang-A is fairly valued.
- Investment Strategy: Maintain BUY for H shares and HOLD for A shares.
- Catalyst: A Chinese stimulus package could drive recovery in the steel industry.
- Product Mix: Angang's high-end product mix may position it to outperform during industry consolidation.
Conclusion
The report highlights that Angang Steel faces challenging market conditions due to declining steel prices and lower demand. Despite these challenges, the revised price targets suggest that the H shares are undervalued and may offer attractive investment opportunities, especially with the potential for recovery in the Chinese steel market. The A shares are fairly valued, with moderate upside. The analysis is based on realistic assumptions and historical valuation gaps.
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