- Magang (323 HK) issued interim profit warning, expecting a 68% yoy decline in 1H22 earnings to RMB1.5bn, worse than expectation.
- This translates to a 93% y-o-y decline during 2Q, as GP plunged on lower steel ASP and rising production cost.
- Expect Chinese steel products’ GP pressure to remain, hence steel companies earnings would continue its declining trend in 3Q from their high base last year.
- We have HOLD rating for Magang.
What’s New
- Magang (323 HK) has issued interim profit warning worse than expectation.
- Six-month earnings had dropped 68% y-o-y to only RMB1.5bn, representing a 93% y-o-y decline during 2Q.
- The decline was primarily due to Chinese steel product average prices drop of 10% y-o-y in 2Q compared to a 7% increase in the first quarter.
- Also due to the significant increase in major raw materials cost during the period.
Our View:
- Since July, Chinese steel product prices downtrend continue to be faster than production cost decline.
- In anticipation of Chinese steel products’ GP pressure to remain, we believe steel companies earnings would continue its declining trend in 3Q from their high base last year.
- Trading to the lower-end of the historical valuation range, we have HOLD rating for Magang.
