Results slightly higher than expected

2013 revenue was HK$4.27bn (-24% YoY); net profit was HK$1.12bn(-38% YoY); diluted EPS was HK$0.21,higher than our and consensus estimates of HK$0.19. 2H13Cash dividend is HK$0.078/sh inaddition tothe HK$0.027 in 1H13(annual dividend yield 4.5%).

Comments: 1)Volume flat, ASP slumped.2013 volume stayed at 6.1mt, ASP of raw/clean coal -25%/-24% YoY, partly due to less high-quality #4 coking coal and more ex-factory sales. 2) Good cost control.Unit production costof raw coalwas Rmb260/t, flatYoY, selling/G&A/financial expenses -47%/-14%/-9% YoY, showing solid cost and expense control despite higherex-factory sales.3) Strong cash flow and healthy balance sheet.Net cash and deposits was HK$5.2bn, 24% of equity, +6ppt YoY. 4) Guidance:2014 output 6.0mt,unit cost -3% YoY.

Trends to watch

Coking coal prices to stabilize short term;1H14 average to be slightly lower HoH but much lower YoY.With dramatic destocking after the Spring Festival, steel plants’coking coal inventory has notably dropped, close to the lowest level in 2013. We expect coking coal prices to stabilize near term. As such,the 1H14average should be just slightly lower HoH, butmuch lower YoY.

Earnings revisions

Maintain earnings estimates;cut TPto HK$2.1. Assuming2014/15production isflat,the ASP of raw coal -12%/-2%,ASP of clean coal -9%/-2%,unit cost -3%/+3%.We maintain EPS at HK$0.15/0.11 (-27%/-25%YoY)and cutour TPto HK$2.1 (0.5x 2014e P/B).

Valuation and recommendation

Short term trading opportunities but lack of momentum.Shougang isdown14% YTD and trades at 15.9x 2014 P/E and 0.55x P/B. Good resultsand seasonality could provide short-term trading opportunities, but it lacks growth while the worsening trend will continue.Maintain REDUCE and we would closely watch M&As.

Risks

Further sharp decline incoal prices.

相关附件