EARNINGS

Maanshan sees first-half loss more than double to 730.27m yuan

PUBLISHED : Wednesday, 20 August, 2014, 10:08am
UPDATED : Wednesday, 20 August, 2014, 10:51am

Shares of Maanshan Iron & Steel, the second-biggest Hong Kong-listed steelmaker, fell 2.7 per cent on Wednesday morning after it posted a worse-than-expected first-half loss.

They traded at HK$1.81 at 10.19am. The company’s shares had gained 8.4 per cent in the previous month as investors bet steel producers’ profitability would improve on the back of sharp falls in raw material prices.

Net loss more than doubled to 730.27 million yuan (HK$919.99 million), from 332.83 million yuan in the same period last year.

The deterioration was attributed to a fall in sales due to slower economic growth on the mainland and in other market. The oversupply problem in the mainland iron and steel industry had also seen steel prices fall, company chairman Ding Yi said in a results statement posted on the stock exchange website on Tuesday night.

The business environment of steel companies will still be challenging
Ding Yi, Maanshan

“During the reporting period, the company’s production and sales volume has decreased as compared to the corresponding period last year, while fixed costs have increased,” Ding said.

Operating revenue dropped 21 per cent year on year to 28.86 billion yuan and net cash flow from operating activities fell 63 per cent to 1.39 billion yuan.

The company said the prices of its main raw materials, such as iron ore and coking coal, had dropped significantly, but the second half of the year would still be tough.

“As there is no obvious improvement on the issue of overcapacity of steel, the business environment of steel companies will still be challenging,” Ding said. “In the second half of the year, we will still operate in a complex global economy, and the influence of geopolitical risk will keep rising.”

Sanford Bernstein senior analyst Vanessa Lau said the second-quarter net loss of 285 million yuan – compared with a profit of 54 million yuan in the same quarter last year – was “weaker than expected across the board”.

“Despite lower iron ore and coking coal costs, Maanshan failed to deliver higher margins and remained in operating losses for the third consecutive quarter,” she wrote in a research note, adding it was not a surprise given bigger rival Angang Steel also posted flat quarter-on-quarter earnings last week.

“The two Chinese steel makers’ second-quarter results highlighted why we remain long term bearish on the sector and see limited upside, as it would take more than just lower raw material prices for us to become positive.”

Maanshan’s third-quarter profit could improve due to lower material prices, but its relatively large exposure to less lucrative construction steel products would continue to drag down its overall profitability, she added.

Maanshan said it planned to cut its manufacturing and procurement costs in the second half of the year, restructure its product mix and improve the efficiency of its sales system.

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