Angang's accounting raises eyebrows

PUBLISHED : Wednesday, 28 September, 2011, 12:00am
UPDATED : Wednesday, 28 September, 2011, 12:00am

Angang Steel, the listed unit of state-owned Anshan Iron & Steel Group, has raised the estimated useful life of its assets, in a move analysts say will artificially boost the company's bottom-line figures amid falling steel prices and high costs.

The company revised projections on how long its assets could generate revenue and services, extending the estimated life of its buildings from 20 years to 30 years and its machinery from 10 years to 15 years.

It also shortened the expected life of its power equipment by a year to 10 years, and that of tools and apparatus by two years to just five.

In effect, this would reduce depreciation charges of its fixed assets by 1.04 billion yuan (HK$1.3 billion) and bolster its net profit by 777 million yuan for this year, Angang said in a statement.

'The practice sounds suspicious to me. It looks like it was trying to make its profit look better,' said Alexander Latzer, Daiwa Capital Markets' head of research, adding that earnings estimates for the firm would be lower due to market conditions.

Before analysts had the chance to adjust their forecasts, Angang was tipped to post a net profit of 1.03 billion yuan this year, according to the average estimate of 27 analysts polled by Thomson Reuters.

Latzer added that higher costs of raw materials and slightly lower steel prices could see Angang post losses in the second half, following its 236 million yuan net profit in the first half.

Analyst Ray Zhao said third-quarter prices of cold-rolled and hot-rolled steel plates, used in making appliances and automobiles, had both risen by around 2 per cent to 150 yuan a tonne and 100 yuan a tonne from the second quarter, respectively.