HSBC Global Research lowered its target price for Angang Steel (00347) to HK$3.63 from HK$4.92 to reflect share issuance in the ratio of three shares for every 10 shares being held to H shareholders by way of capitalisation of the capital reserve. The research house maintained its "hold" rating.
HSBC said raw material price strength, especially for iron ore, has been the main reason for margin declines for steelmakers so far in 2019. Iron ore peaked at US$125/t in June and has averaged US$95.3/t for 2019, up 37%. While the price has eased from this peak, it is still hovering around US$90/t, considerably higher on a year-on-year (YoY) basis.
The steel price has held up well in 2019 so far although it has been much weaker than prices of raw materials. Rebar and HRC prices are flat year-to-date but down 16% YoY and 14% YoY, respectively. This has resulted in significant margin squeezes for steel companies.
HSBC cut its 2019-20 net profit estimates for Angang by 35% and 9.2% and to RMB2,728mn and RMB3,953mn.
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