<p>PRC Steel<br/>The Bull vs. The Bear: We Are Not Following The Herd<br/> Today bull, tomorrow bear? – We remain bearish on the China steel sector.<br/>Admittedly, it is tempting to join the bullish herd, especially given likely short-term<br/>upside for Maanshan and Angang on improving sequential data points and<br/>selective positive macro newsflow. But while we missed the turn in the China steel<br/>stocks, we should not adapt our fundamental view to fit the share price.<br/> Bull and the Bear: 6 questions from our strategist – In this report, we address six<br/>questions posed by our Asia ex-Japan equity strategist about the investment case<br/>for China steel stocks. Our approach is to present the evidence, and then argue<br/>the bull case and bear case with impartiality (we hope!). As such, investors can<br/>separate "fact" from "faith" and reach their own conclusions.<br/> Faith and the fundamentals – Investors seem to be focusing on 1) high levels of<br/>apparent consumption; 2) signs of a price recovery 3) favourable government<br/>policies – namely, the setting up of working teams to speed FAI, a lowering of the<br/>capital requirement ratio and an edict to close inefficient steel plants. Other<br/>relevant factors are seasonality, inventory cycles and slow policy effects.<br/> Resisting upgrades, because we don’t have conviction – While some trends clearly<br/>are improving – raising the potential for a return to profitability – we cannot turn<br/>positive when stocks are factoring in a 10%+ jump in prices. At such a level,<br/>China would be flooded with imports absent a global recovery in steel demand.<br/> What if faith and the fundamentals converge? – The risk to our view is that current<br/>improvements accelerate, delivering strong demand and profitability.</p><p>By No Means An “Easy” Call 3<br/>Q with A; both the Bull case and Bear case 3<br/>1) China steel stocks have moved a lot in the past 2 months. What<br/>are current multiples and how do they compare to prior recoveries? 3<br/>2) What are stocks prices implying as regards future prices and<br/>demand? 4<br/>3) So, to buy these stocks now, you have to assume a V-shaped<br/>recovery? 5<br/>4) Who benefits most from the stimulus package: long product<br/>producers or flat producers? 5<br/>5) Are we seeing any signs of an inventory build? 6<br/>6) What is the risk to share prices if we see a softening of demand? 7<br/>The Improving State of Steel 9<br/>Non-Steel elements 9<br/>Demand – The Current Thinking 10<br/>Steel Macro Cycle Updates 11<br/>Flat Steel Charts 16<br/>Long Product Charts 18<br/>Valuation &amp; Risks 20<br/>Angang Steel 20<br/>Maanshan Iron and Steel 20<br/>Baoshan Iron &amp; Steel 20<br/>Wuhan Iron And Steel 21<br/>Appendix A-1 22</p><p><br/></p><p></p>

[此贴子已经被作者于2009-5-23 22:54:40编辑过]