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Baosteel Co.,Ltd.Alert:Baosteel 1Q16results beat consensus,Reiterate Buy

发布时间:2016-04-28    研究机构:德意志银行

1Q results in line with DBe but beat consensus

Baosteel announced its 1Q16 results after market close on April 27. Baosteelrecorded revenue of RMB35bn, achieving 18% of the DBe and 20% of marketconsensus. Its bottom line arrived at RMB15.3bn, achieving 19% of DBe and39% of market consensus. Its results were in line with DBe but beat marketconsensus. We believe 1Q16 results should be positive to the share price. BuyRe-iterated.

Profitability and volume both improved

In 1Q16, China HRC price increased by 16% QoQ, while Baosteel’s ASPimproved by RMB423/t, up 12% QoQ. Company’s profitability significantlyimproved. Average unit gross profit of major products increased from negativeRMB964/t in 4Q15 to positive RMB538/t in 1Q16. Baosteel sold 5.62mmt steelproducts, up 7% YoY, which is the best 1Q sales volume number in the pastfour years. After switching its U.S dollar dominated debt to RMB dominateddebt, net financing cost significantly increased to RMB528mn, mainly fromincreasing interest payment and decreasing interest income. We believe thereis an RMB190mn inventory revaluation gain due to improved steel in 1Q.

Healthy cash flow from operation and declining CAPEX

Cash flow from operation significantly improved to RMB7bn in 1Q16 fromRMB5.8bn in 4Q16, while its CAPEX significantly cut to RMB3bn 1Q16, from5.7bn in 4Q15. In addition, its net gearing ratio was kept at healthy level as35% as of 1Q16 quarter end, after increasing mid-term bank note of c.RMB5bnand short term financing bond of c. RMB10bn. Company’s AR and inventoryincreased to 44 days and 69 days in 1Q16, from 37 days and 56 days in 4Q15respectively. However, its AP days also climbed to 75 days in 1Q16 from 60days in 4Q15, accordingly.

Quality volume growth in 2016 expected, Buy reiterated

We remain a cautious view on China steel industry and believe currentrestocking cycle will peak out in June, highlighted in the report “When will thiscyclical recovery peak out” published on April 15, 2016. However, Baosteelremains to be our top pick because of its expected quality volume growth fromZhangjiang project ramp up in 2016. Current Baosteel is trading at 0.82x BVPS,with 31% upside potential to our TP of RMB7.9. We reiterate Buy on Baosteel.