Best China steel sector pick
Two sound growth priorities for 2022. Management has achieved great milestones in cutting emissions after increasing capex for the transformation to a green, low-carbon producer. Also, the company looks to increase production of higher margin steel, like H-beam and special steel products. We believe these moves would better the company’s long-term development.
Expect more resilient unit GP outlook. Although we expect MaSteel’s unit GP to retreat lower, from 2021’s average (RMB695/t) to RMB534/t and RMB587/t in 2022 and 2023, respectively, we still expect it to be able to deliver earnings that are better than its peers. This is underpinned by the sales rebound, which is driven by the China infrastructure investment rebound, and cost synergy from and sharing with the parent group.
Maintain BUY. We revised down our FY22F/FY23F earnings by 35%/30%, primarily on weaker-than-expected unit GP for 2Q. News flow and the expected quarterly earnings improvement may be share price catalysts.