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Asia Pacific Materials:
Monthly Navigator
Strong News Flow to Further
Drive Stock Performance
Shares recovered 7% in April, but that still leaves
the group down 23% YTD: Nine Dragons (O/W)
proved a strong bounce candidate recovering 22%;
whilst strong news flow in coal, steel and cement drove
performance from: China Coal (O/W) (+24%); Dongkuk
(O/W) (+20%) and Anhui Conch (E/W) (+18%).
Steel, Cement & Coal news flow remains good:
Steel pricing continues strong particularly in
long-products and outside China. Chinese cement
restructuring is also driving pricing inside China as well
as in the region. Whilst coking coal pricing in China is
moving up towards the international prices, the outlook
for non-ferrous is mixed. (Please see our industry
write-ups in this report for full coverage.)
We highlight our current top ideas:
1) Maanshan (O/W-V, PT HK$6.40): We upgrade to
O/W and look for the company to capitalise on strong
long-product pricing in China. It ranks amongst the most
attractive stocks in our universe (see Exhibit 3).
2) POSCO (O/W, PT W700,000): It currently ranks as
the most attractive stock in our universe, trading at a
40-50% discount to its peers on our 2008 forecasts.
3) China Steel (O/W, PT NT$56): We look for
management to announce a 3Q contract price increase
at the end of May of +10-15%.
4) Western Mining – (UW, PT Rmb18.29): This is one
of the least attractive in our coverage universe, still
trading at a 75-80% premium to its peers despite
reporting 1Q earnings well below forecasts.
We generally favor upstream over downstream
producers and Asian over export-focused industries.
We have Attractive industry views on Chinese Forestry
and Building Materials as well as Steel in Korea and
Taiwan. However, we maintain an In-line view on China
Steel due to unfavorable government policy.
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