Baosteel Co.Ltd.Alert:Stably moving and waiting for synergy to realize;Buy re-iterated
1H17results should be in-line with consensus
Baosteel announced its 1H17results after market close on August 24. In 1H17,the company has recorded revenue of RMB170.1bn, RMB 8.51bn for operatingprofit, and NPAT of RMB 6.2bn. The company’s bottom line reached 42.1%FY17DBe and 48.1% Bloomberg 2017full year estimates. We believe the1H17results is in-line with consensus but disappointed DBe as a result oflower-than-expected GP/t.
2Q17GP/t down RMB325/t, but our full year forecast remains intact
The company’s shipment volume in 2Q17came at 12mt, up 12% QoQ. 2Q17.ASP dropped RMB350/t QoQ, in line with market price movement for flat steelproducts. Baosteel’s steel products 2Q17GP/t dropped by RMB325/t QoQ,which compressed GPM to 10.4% in 2Q17from 16.3% in 1Q17. With QTDHRC spread (as a proxy for steel plate profitability) already improved byc.RMB400/t, we remain comfortable with our FY17NPAT estimate ofc.RMB14bn given the optimistic profitability outlook for 2H17. Our FY17DBeNPAT is currently 12% above Bloomberg consensus.
Outlook remains positive, maintain Buy
We expect profitability improvement in 3Q17for Baosteel due to upcomingpeak demand season driven by seasonal recovery in auto production.Meanwhile, winter pollution measures will likely keep 4Q17D/S of steel markettight (Details in our report: Undervalued structural changes, reiterating Buy forsteel sector, published on 18July 2017). These will likely play out to be thecatalysts to let Baosteel’s profitability remain upbeat. Thus, we maintain ourBuy rating for Baosteel.