Steel in China- No Government Capacity Shutdown

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Equity Bottom-Up

Baoshan Iron & Steel Co A / Equity Bottom-Up

No-moat Baosteel’s 2016 net income is expected to increase by about 770% year over year to CNY 8.8 billion. The results beat our expectations, exceeding our full year estimate by about 10%. Management attributed the strong performance to higher sales volume and effective cost-cutting measures.We believe that Baosteel has benefited from the strong recovery in steel prices in China, and we expect steel prices to remain firm in the near term. Nonetheless, given that the stronger prices are driven primarily by cost support stemming from higher iron ore and coal prices, we think margin pressure would make it difficult for the firm to repeat its stellar results.Analyst: Phillip Zhong

No-moat Baosteel’s 2016 net income is expected to increase by about 770% year over year to CNY 8.8 billion. The results beat our expectations, exceeding our full year estimate by about 10%. Management attributed the strong performance to higher sales volume and effective cost-cutting measures.We believe that Baosteel has benefited from the strong recovery in steel prices in China, and we expect steel prices to remain firm in the near term. Nonetheless, given that the stronger prices are driven primarily by cost support stemming from higher iron ore and coal prices, we think margin pressure would make it difficult for the firm to repeat its stellar results.Analyst: Phillip Zhong

Baosteel's Strong 2016 Preliminary Results Beat Our Expectation; Fair Value Estimate Intact