Baosteel Co.,Ltd.Alert:Strong 1H16results,in line with DBe发布时间：2016-08-30 研究机构：德意志银行
1H16 results in line with DBe, beat market consensus.
Baosteel reported 1H16 results after market close on 30 August. Its revenuewas RMB78bn, down 3% YoY and 6% HoH, achieving 39% of FY16 DBe and46% of Bloomberg consensus. 1H16 NPAT arrived at RMB3.5bn, cf. RMB3.2bnin 1H15 and RMB2.2bn net loss in 2H15. Baosteel 1H16 results were in linewith DBe but beat market consensus, achieving 43% FY16DBe and 68%Bloomberg consensus. The stock trading remains suspended for theconsolidation/restructure with Wuhan Steel.
Unit GP improved as expected.
Baosteel sold 11.85mt steel products in 1H16, up 11% YoY. Average unit grossprofit of major products improved c.RMB472/t HoH, in line with market HRCconcurrent spread trajectory. 3Q16 QTD HRC spread is similar to that in 1H16.
As such, we expect Baogang to maintain its 1H16 profitability in 3Q16. Inaddition, Baogang’s Zhanjiang furnace started production on 15 July, whichshould further boost production volume in 2H16 and FY17 as expected.
Increasing interest expense, unlikely to decline in 2H16.
Interest expense in 1H16 increased by to RMB1.4bn, up 90% YoY, almost 40%of its NPAT in 1H16. The increasing interest expense was attributable to 1)Converted US$ dominated debt to RMB dominated debt, which resulted inRMB270m interest expense, 2) Expensed financing expense of Zhanjiangproject, previously capitalized, of RMB150m and 3) Financed with new debt ofRMB20bn, which required interest expense of RMB200m in 1H16. Theseinterests seem to be the recurring expense, unlikely to drop in 2H16.
We expect healthy sales volume growth, Buy reiterated.
Trading of Baosteel has been suspended since 27 June, owing to theconsolidation/restructure with Wuhan Steel. As the Zhanjiang base ramp-upprogressed, Baosteel is the only company under our coverage for which weexpect healthy sales volume growth in 2017/2018. Buy reiterated.