高华证券--中国：钢铁：供应比预期更紧张；估值蕴含着具吸引力的上行空间

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Supply tighter than expected; valuations offer attractive upside
【出版时间及名称】：091222China: Steel：Supply tighter than expected; valuations offer attractive upside
【作者】：高华证券
【文件格式】：PDF
【页数】：11
【目录或简介】：
New data points supporting positive fundamental outlook
Fundamental snapshot is positive:
1) Benchmark domestic hot-rolled (HR) price has been up 9 consecutive
weeks, up 12% from the mid-October low.
2) Steel traders’ inventories – a key fundamental indicator – continue
to be favorable, with flat steel down almost every week since mid-Oct
high. More importantly, our analysis shows the inventory drawdown in the
traders sample is bigger than export pickup, suggesting domestic
fundamental improvement: Nov net export increase of 0.33mt is smaller
than the 0.54mt trader inventory decline, with the latter representing about
25% of national channel inventory, by our estimate.
New data points supporting further upside:
1) We believe market concern on steel overcapacity is overblown:
– Steel capex cycle is turning more positive, with capex down 21% in Nov
yoy and up 0.7% ytd yoy, vs. 2007 up 12% yoy and 2008 up 24% yoy. The
last time steel capex had a big drop (to -3% yoy in 2006), steel prices rose
for two subsequent years in a structural strong demand environment.
– Steel production has been down two consecutive months with
November daily production 6.8% off September peak.
2) Three factors potentially boosting sustainability of slower supply:
– Large mills’ capacity addition suspended by central gov’t for 3 years.
– Small mills’ profitability continues to be eroded by upstream raw
material tightness. Despite 12% steel price rise since mid-Oct, we estimate
small mills’ current gross margin continues to be around 3%.
– Government’s new initiatives on taking out obsolete capacity below 1mt
is incrementally positive. Our channel checks indicate this capacity could
total c. 10%, or 70mt of total national capacity. Even if only 20% of the
70mt is taken out, we estimate a 3 ppt utilization boost in 2010 to 91%.
Good entry levels after pullback; top picks Baosteel/Angang
1) Steel equities have pulled back by 8% from recent highs and now offer
21%-41% upside to mid-cycle valuations. Our screen suggests upside to
mid cycle is the most favorable in steel stocks within our coverage.
2) Baosteel’s valuation looks the most attractive in our China steel
universe, 41% upside to mid cycle, vs. three other names’ avg. 24%.
Angang offers two advantages over peers: Double-digit 2010E volume
growth and iron ore costs 14% lower than peers’ due to 65% sourcing from
parent at 5% discount to import avg. on a 6-month lagging basis. We
maintain our earnings, ratings and 12-m TPs for the four steel names.

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关键词：高华证券 吸引力 Overcapacity Fundamental environment China Steel 高华证券