Citic Pacific saw its share price drop 5.5 per cent yesterday after analysts slashed profit estimates, following disappointing annual results and amid concerns that the company's Australian iron ore mining project will record more losses.
On Thursday, the Hong Kong flagship of the state-owned Citic Group posted a net profit of HK$6.95 billion, 10 per cent less than the average estimate of analysts polled by Thomson Reuters.
A research report by Citi said that stripping out property revaluation and asset disposals, core profit at the conglomerate, which is involved in activities from steel to property and financial services to manufacturing, fell 52 per cent to HK$3.46 billion last year, well below analysts' consensus estimates of HK$4.49 billion.
Citi's analysts cut their forecast for Citic Pacific's underlying net profit by 34 per cent to HK$2.57 billion for this year, and by 22 per cent to HK$3.5 billion for next year. Jefferies Securities' analysts also slashed their underlying net profit estimate, by 24 per cent to HK$3.1 billion for this year and by 22 per cent to HK$4.3 billion for next year.
The analysts pointed to higher costs at Citic Pacific's iron ore project in Western Australia and lower profitability from its mainland Chinese special steel manufacturing subsidiary.
Citic Pacific's chairman, Chang Zhenming, said on Thursday the profitability of the much delayed and over-budget iron ore project would be "challenged" by low output and an uncertain short-term price outlook.
Chang said the firm would strive to have all six production lines up and running within two years. The first line came on stream in November last year and the second is expected to come on stream in May.
However, analysts at Goldman Sachs pointed to comments by Citic Pacific management in a briefing that lines three to six would come on stream between the second half of next year and 2016.
Analysts said Citic Pacific management had disclosed a budget of up to US$1.2 billion for the construction of lines three to six. The firm would not give a figure, except to say that US$9.1 billion had been spent on the project by the end of last year.
Citi analysts said the iron ore operation would see operating losses of HK$2.46 billion this year and HK$1.72 billion next year, before breaking even in 2015.
Citic Pacific shares closed yesterday at HK$11.26.