Bullish report ahead of IPO for owner of Jinxi steel mill

Main-board listing candidate China Oriental Group, whose only asset is a 97.6 per cent stake in Jinxi Iron & Steel, is expected to post net profit growth of 29.7 per cent this year and 20.2 per cent next year.

According to a report sent to fund managers by underwriter JP Morgan, China Oriental is forecast to make a net profit of 1.35 billion yuan this year and 1.62 billion yuan next year.

Last year's profit is estimated to have grown 169.5 per cent to 1.04 billion yuan from 388 million yuan in 2002.

Jinxi, based in Hebei province, focuses on construction steel, with billets accounting for 70 per cent of last year's sales volume and strips 30 per cent. About 70 per cent of its products go to infrastructure projects and medium to low-end housing.

China Oriental aims to raise US$200 million to $300 million next month in a global share offering. A roadshow will begin next week.

JP Morgan's bullish forecast comes despite an expected gradual fall in product prices this year and next, resulting in lower profit margins. Product prices have been rising for almost two years after a three-year market slump.

While rising raw material costs will see overall gross profit margin fall from 26.3 per cent in 2002 to an estimated 25 per cent last year and 23.4 per cent this year, the United States brokerage said Jinxi's planned expansion into higher-profit downstream products would help lift its overall margin to 28.8 per cent next year.