报告名称：Baosteel Co. Ltd. Alert(600019)Access China conference highlights 2016
报告类型：点评报告
报告日期：2016-01-13
研究机构：德意志银行
股票名称：宝钢股份
股票代码：600019
页数：1
简介：2016 outlook: total demand down c.3% YoY
Baosteel estimated that China’s total apparent steel consumption declinedc.5% YoY in FY2015 and it may further decrease c.3% YoY in 2016. In terms ofdownstream demand drivers, Baosteel predicted that only auto sales and gridinvestments may remain strong, while other industries might see furthersluggish growth. As such, auto plate (CRC) and silicon steel (GOES and non-GOES) might outperform in terms of profitability. Grain-oriented electrical steel(GOES) growth is mainly driven by the grid upgrade globally, while non-grainorientedelectrical steel (non-GOES) demand is driven by increasing EV sales.
Supply-side reform offers a clear direction but execution remains an issue
Baosteel interprets “supply-side reform” as a slow, gradual process of forcingout weaker producers. The central government’s current ideas are clear andinclude 1) establishing a specific fund for reallocating prospective unemployedlabor, 2) making capacity cuts a part of local government administrativeperformance, and 3) encouraging industry restructuring. However, Baosteelremains skeptical about local government execution. As for capacities alreadyshut down, Baosteel thinks it is still unclear whether these are permanent ortemporary shutdowns. It does not rule out the possibility that some “shutdown”capacities may return when steel prices recover. As for the potentialmerger with Wuhan Steel, Baosteel maintains the same stance that the list coannounced to the market. Baosteel believes that even if it happens, the mergerwill be at the parent group level and the impact on the list co would be limited.
ASP and gross profit to remain weak in 2016
The steel price was lower in 4Q15 than in 3Q15. Despite that, the gross profitdecrease is very limited as raw material prices declined accordingly during thesame period. To reflect the short-term downstream improvement, mainly fromauto restocking, Baosteel has raised quote prices by RMB100/t for Feb andanother RMB50-100/t for March. Nevertheless, Baosteel guides that FY2016steel ASP may remain weak, at 2H15 levels, reflecting shrinking demand andthe slow process of supply cuts. Baosteel guided that steel ASP will probablynot decline significantly unless iron ore prices drop heavily. Baosteel estimatedan iron ore ASP of c.US$45/t for 2016.
Reiterating Buy on Baosteel
We remain cautious on the steel industry as we see no clear improvement indemand/supply balance. Given Baosteel’s superior ROE and positive outlookon traditional auto and electrical vehicle sales in 2016, we believe its valuationshould recover from the current 0.8x PBx to close to 1x. We reiterate Buy.

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