baoshan iron & steel co.,ltd. 3q15 results
TRANSCRIPT
October 2015
Baoshan Iron & Steel Co.,Ltd.3Q15 Results
Disclaimer
The following presentation distributed herewith includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that Baoshan Iron & Steel Co.,Ltd.(Baosteel) expects or anticipates will or may occur in the future are forward-looking statements.
Baosteel’s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, competition and other risks and factors beyond our control.
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3Q Results3Q Results3Q Results3Q Results
Industry Dynamics
Contents
Unit 3Q15 YoY 9M15 YoYSales Volume million tons 5.4 ↑ 0.7% 16.1 ↓ 2.9%
Total Operating Income billion RMB 41.5 ↓ 9.9% 122.4 ↓ 14.9%
Operating Cost billion RMB 38.5 ↓ 6.4% 110.0 ↓ 14.9%
Gross Profit billion RMB 2.9 ↓ 40.9% 12.2 ↓ 14.8%
Gross Margin % 7.02 ↓ 3.68ppts 9.96 ↑ 0.01ppts
Total Profit billion RMB -1.45 ↓ 159% 2.95 ↓ 57.5%
Net Profit billion RMB -0.92 ↓ 150% 2.25 ↓ 55.0%
Net CFO billion RMB 6.0 ↓ 24.4% 15.4 ↓ 30.6%
EPS RMB/share -0.06 ↓ 0.17ppts 0.14 ↓ 0.16ppts
Weighted ROE % -0.80 ↓ 2.47ppts 1.98 ↓ 2.50ppts
Unit end of Sep. YoY
BVPS RMB/share 6.92 ↑ 0.4%
Leverage % 48 ↓ 1.81ppts
Operation OverviewOperation OverviewOperation OverviewOperation Overview
Baosteel VS CISA membersBaosteel VS CISA membersBaosteel VS CISA membersBaosteel VS CISA members
Total Profit (unit: billion RMB)
Note: Baosteel is not included in the Members• CISA members in 9M15, crude steel output: 460mnt, 1.2% YoY
total profit: RMB -28.1bncore business profit: RMB -55.3bn
2.95-0.31 -0.10公司 会员企业平均 千万吨以上会员企业平均Baosteel Members Average Members Average(over 10m tons capacity)
178.8
-69.7 -74.0公司 会员企业平均 千万吨以上会员企业平均
Total Profit per ton (unit: RMB/ton)
Maintain Best PerformanceMaintain Best PerformanceMaintain Best PerformanceMaintain Best Performance
Baosteel Members Average Members Average(over 10m tons capacity)
World Debut --New grade of 3rd generation auto sheet: QP1180GAAuto sheet
Silicon steel
PipeExplore Overseas Market --Turkey project“TANAP”; Oman project“BP”
New Energy Vehicle and EV --Acquire new energy vehicle certification from BYD, replace imported material
Heavy plateMarine Engineering --YAMAL project; supply high grade marine engineering steel for CIMC
High End Markets
HighlightsHighlightsHighlightsHighlights
Ignition of 1# BF of Zhanjiang Steel on 25 Sep• Started in May 2013, took over 2 years• 2016-2018: final products come out• Designed capacity: iron 8.23mnt, crude steel 8.75mnt,
steel product 6.9mnt
HighlightsHighlightsHighlightsHighlights
“Internet+Steel”, Steel Ecosystem
欧冶材料Ouyeel Steel TradingOuyeel Finance Ouyeel Logistics3rd party steel trading platform9M trade volume: 5.1mnt,up 64% YoY;trade volume climbed up month by monthRegistered clients: 41 thousand, up 32% YoY
Own financial licenses of settlement, mortgage, factoring3rd party settlement of “Oriental Pay”in 9M: RMB 34.2bnAcquire RMB 162.7bn credit line from 13 banks
Modernized logistics and warehousing systemAffiliated warehouses near 200, with domestic turnover capacity of 50mnt4th party“Ouyeel Logistics Platform”on line
HighlightsHighlightsHighlightsHighlights
Unit: Unit: Unit: Unit:
million tonsmillion tonsmillion tonsmillion tons
3Q153Q153Q153Q15 QoQQoQQoQQoQ YoYYoYYoYYoY
Crude SteelCrude SteelCrude SteelCrude Steel
OutputOutputOutputOutput
5.5 ↑ 1.7% ↑ 4.0%
Operating ResultsOperating ResultsOperating ResultsOperating Results
Unit:Unit:Unit:Unit:
million tonsmillion tonsmillion tonsmillion tons
3Q153Q153Q153Q15 QoQQoQQoQQoQ YoYYoYYoYYoY
SalesSalesSalesSales 5.4 ↓ 1.1% ↑ 0.7%
Including:Including:Including:Including:
exportexportexportexport
0.7 ↑ 41.6% ↑ 12.9%
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
3Q153Q153Q153Q15 QoQQoQQoQQoQ YoYYoYYoYYoY
Total Operating Total Operating Total Operating Total Operating
IncomeIncomeIncomeIncome
41.5 ↑ 5.2% ↓ 9.9%
Unit:Unit:Unit:Unit:
billion RMBbillion RMBbillion RMBbillion RMB
3Q153Q153Q153Q15 QoQQoQQoQQoQ YoYYoYYoYYoY
Operation CostOperation CostOperation CostOperation Cost 38.5 ↑ 10.4% ↓ 6.4%
5.3 5.4 5.5
3Q14 2Q15 3Q15
5.4 5.5 5.4
0.6 0.5 0.73Q14 2Q15 3Q15
46.1 39.5 41.5
3Q14 2Q15 3Q15
41.2 34.9 38.5
3Q14 2Q15 3Q15
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
3Q153Q153Q153Q15 QoQQoQQoQQoQ YoYYoYYoYYoY
Gross ProfitGross ProfitGross ProfitGross Profit 2.9 ↓ 35.3% ↓ 40.9%
Gross MarginGross MarginGross MarginGross Margin 7.0% ↓ 4.4ppts ↓ 3.7ppts
Gross ProfitGross ProfitGross ProfitGross Profit
4.94.5
2.910.7% 11.4%
7.0%
3Q14 2Q15 3Q15
HRCHRCHRCHRC 39%39%39%39%
CRCCRCCRCCRC 43%43%43%43%
OthersOthersOthersOthers 5555%%%%
TubeTubeTubeTube 8888%%%%
PlatePlatePlatePlate 5%5%5%5%
Sales BreakdownSales BreakdownSales BreakdownSales Breakdown
Gross Margin by ProductGross Margin by ProductGross Margin by ProductGross Margin by Product
HRC
Others Tube
Plate
CRC
14.8%16.3% 15.5%
14.9 %
3.7%
-0.3%
10.0%
-0.4%-2.7%
-4.8%■ 9M14■ 9M15
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
RevenueRevenueRevenueRevenue YoYYoYYoYYoY GrossGrossGrossGross
MarginMarginMarginMargin
YoYYoYYoYYoY
SteelSteelSteelSteel MakingMakingMakingMaking 75.2 ↓ 19.4% 10.3% ↑ 0.03 ppts
DistributionDistributionDistributionDistribution 107.5 ↓ 18.0% 3.1% ↑ 0.7 ppts
Revenue and Gross MarginRevenue and Gross MarginRevenue and Gross MarginRevenue and Gross Margin
----Steel and Diversified BusinessSteel and Diversified BusinessSteel and Diversified BusinessSteel and Diversified Business
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
RevenueRevenueRevenueRevenue YoYYoYYoYYoY Gross Gross Gross Gross
Margin Margin Margin Margin
YoYYoYYoYYoY
EEEE----commercecommercecommercecommerce 12.7 ↑ 19.8% 0.4% ↓ 0.4 ppts
ChemicalsChemicalsChemicalsChemicals 5.9 ↓ 18.8% 9.3% ↓ 3.7 ppts
ITITITIT 2.7 ↑ 5.2% 28.6% ↓ 2.2 ppts
FinanceFinanceFinanceFinance 0.5 ↑ 3.9% 53.1% ↓ 2.0 ppts
93.2
131.1
75.2107.5
steel making distribution9M14 9M15
10.6
7.2
2.60.5
12.7
5.92.7
0.5
E-commerce chemicals IT finance9M14 9M15
“Steel price”: HRC price 22%CRC price 12%
(Shanghai base ASP in 9M)
“FX loss”:RMB -2.04bn
“Impairment loss of Baotong Steel”
Net profit estimated down 50%-100% YoY
Alert of Alert of Alert of Alert of 2015 Full 2015 Full 2015 Full 2015 Full Year ResultsYear ResultsYear ResultsYear Results
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3Q15 Results
Industry DynamicsIndustry DynamicsIndustry DynamicsIndustry Dynamics
Contents
GDP CPI
• GDP up 6.9% in 9M, first time below 7% in past 6 years.
• Economy restructuring is at the critical stage.
• CPI up 1.4% in 9M, much lower than the annual target of 3%.
• CPI growth has been lower than 2% in the past 14 months, leaving room for further monetary policy change.
Macro EconomyMacro EconomyMacro EconomyMacro Economy
Data source: National Bureau of Statistics
9.5%
7.7% 7.7% 7.4%6.9%
2011 2012 2013 2014 9M15
5.4%
2.6% 2.6%2.0%
1.4%
2011 2012 2013 2014 9M15
Unit: million tons 9M159M159M159M15 YoYYoYYoYYoY
Output 609 ↓ 2.1%
Net export 76 ↑ 31.8%
Apparent consumption 533 ↓ 4.9%
• Crude steel output was 609mn tons in 9M, down 2.1% YoY.• Apparent consumption remained negative growth, oversupplied situation was still serious. Large increase in export absorbed excess output.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----SupplySupplySupplySupply
Crude Steel Output and Apparent Consumption
Data source: National Bureau of Statistics, Customs Statistics
816 823
609765 739
533
2013 2014 9M15Output Apparent Consumption
-2.0%
-2.1%
-5.9%
• Steel industry FAI was RMB 311bn in 9M, down 13.6% YoY.• Investment fell rapidly under a weakening fundamental.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----SupplySupplySupplySupply
Steel Industry FAIUnit: billion RMB
Data source: Wind
506 479
311-2.1%
-5.9%
-13.6%
2013 2014 9M15Steel Industry FAI YoY
• In 9M, China exported 83.1mn tons(+27.2% YoY); imported 9.73mn tons(-11.6% YoY). Net export were 73.38mn tons, up 35% YoY.
• Export growth slowed down but still high.
• Domestic steel price hit new record low, causing a lower export price. In 9M, average export price was USD 585/ton, down 25.4% YoY.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----Import & ExportImport & ExportImport & ExportImport & Export
Net Export of Steel ProductsUnit: million tons
Data source: Custom Statistics48.3
79.3 73.4
14.7%
64.4%
35.0%
2013 2014 9M15Net export YoY
FAIFAIFAIFAI
20.6%19.6%
15.7%
• FAI totaled RMB 39 trillion in 9M, up 10.3% YoY, growth continued to slow down.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(infrastructure)Demand(infrastructure)Demand(infrastructure)Demand(infrastructure)
Unit: trillion RMB
Data source: Wind
4450
39
19.6% 15.7%10.3%
2013 2014 9M15
Investment New Start and Sales Growth
• Investment and new start grew at 2.6% and -12.6% YoY respectively in 9M, growth rate in downward trend.
• Stimulated by the interest rate cuts, real estate sales growth rebounded to 7.5% in 9M.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(real estate)Demand(real estate)Demand(real estate)Demand(real estate)
Unit: trillion RMB
Data source: Wind
8.6 9.5
7.1
19.8%10.5%
2.6%
2013 2014 9M15
13.5%
-10.7%-12.6%
17.3%
-7.6%
7.5%
2013 2014 9M15New start Sales
Output Sales
• Output and sales were 17.09, 17.06mn units, down 0.8% and up 0.3% YoY respectively in 9M. Auto industry was under great pressure, growth slowed down.
• Passenger car sales up 2.8% YoY, outperformed commercial car(down 11.8% YoY).
• We expect 2015 auto sales to grow at 0-2%, considering macro economy and auto makers’ destocking pressure.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(auto)Demand(auto)Demand(auto)Demand(auto)
Unit: million units Unit: million units
Data source: CAAM
22.12 23.72
17.09 14.8%
7.3%
-0.8%2013 2014 9M15
21.98 23.49
17.06 13.9%
6.9%
0.3%
2013 2014 9M15
Washing Machine Refrigerator
Air-conditioner TV
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(home appliances)Demand(home appliances)Demand(home appliances)Demand(home appliances)Unit: million units Unit: million units
Unit: million units Unit: million units
Data source: Wind• Washing machine and TV outperformed in 9M.• Consumption upgrade will continue, smart appliances is expected to boost new demand.• Expected growth rate of white goods in 2015: 5% for washing machine and air-conditioner,
0% for refrigerator.
72.0 71.1 53.68.2% -3.3% 3.4%2013 2014 9M1593.4 88.0 71.410.6% -1.0% -1.7%2013 2014 9M15
143.3 144.6 123.911.6% 11.5% 1.0%2013 2014 9M15140.3 141.3 116.2-0.2%
6.2% 5.9%2013 2014 9M15
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(machinery)Demand(machinery)Demand(machinery)Demand(machinery)
Value Added Growth, YoY
Data source: National Bureau of Statistics
• Transportation equipment’s growth fell from a high position, electrical equipment climbed slowly and other sub-sectors remained low.
• Future trend is not optimistic due to excess capacity and depressed related industries.
• Growth downside is expected limited in 2H15, industry average 6% for the full year.
-5%0%5%10%15%20%25%30%
2014 May-14 Aug-14 Nov-14 Mar-15 Jun-15 Sep-15
General EquipmentSpecial EquipmentElectrical equipmentTransportation Equipment
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(ship building)Demand(ship building)Demand(ship building)Demand(ship building)
CompletionUnit: million tonnages
Data source: CANSI
• Completion and new order were 29.4(+12.7% YoY) and 18.2 (-65.4% YoY)mn tonnages respectively in 9M, carrying order was 133(-9.2% YoY)mn tonnages by the end of Sep, down 10.8% Ytd.
• Completion growth declined, new orders and carrying orders decreased every month.
• Ship making industry was still weak due to the sluggish shipping market and marine engineering market caused by low oil price.
123456
2013 2014 2015
Steel InventorySteel InventorySteel InventorySteel Inventory
Social Inventory Steel Mills InventoryUnit: million tons Unit: million tons
Data source: Mysteel Data source: CISA• Overall inventory level is lower in 2015, 9.6mn tons by 30 Oct, down 6% MoM and down 8% YoY.
• As transferred from social inventory, steel mills inventory was in upward trend, while fell back since late June.
• Steel mills inventory was up 4% YoY and up 14% Ytd in early Oct.
0510152025
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15Total Long Products Flat Products 12141618
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Raw MaterialRaw MaterialRaw MaterialRaw Material
Platts(62% Fe) Coke and Scrap PriceUnit: RMB/ton
Data source: Wind• Imported iron ore 700mn tons in 9M, slightly decreased. Average import price USD 62.3/ton, down 42% YoY.
• Entering 2015, Platts was still in downward trend and dropped to historical low USD 44.5/ton on 8 July. Platts was USD 48.6/ton by 2 Nov, down 32% Ytd and down 38% YoY.
• Coke price is still in downward trend and expected to continue in 2015.
44.5406080100120140160
1月 2月 4月 5月 7月 8月 10月 11月2013 2014 2015Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 50010001500200025003000
Jan-14 Apr-14 Aug-14 Nov-14 Mar-15 Jun-15 Oct-15Coke Scrap
Iron Ore InventoryIron Ore InventoryIron Ore InventoryIron Ore Inventory
Port Inventory Unit: million tons
Data source: Mysteel
• Port inventory declined slowly in 9M, but remained high position.
• 84.5mn tons by 30 Oct, down 16% Ytd and down 21% YoY.
020406080100120
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15Total Australia Brazil India
Steel MarketSteel MarketSteel MarketSteel Market
HRC, CRC and Rebar Price CRC Products PriceUnit: RMB/ton Unit: RMB/ton
Data source: Wind• Due to weak downstream demand and losing support from raw material, steel price has decreased to the 20 years low.
• Industry’s profit decreased significantly in 9M. According to CISA, member steel mills’ total profit was RMB -28.1bn, about 49% of which lost money. The industry lost RMB 55.3bn in main business.
• Full year profit is expected negative, the industry is entering “cold winter”.
180023002800330038004300
Jan-14 Apr-14 Aug-14 Nov-14 Mar-15 Jun-15 Oct-15HRC 3.0 CRC 1.0 Rebar HRB400 250035004500550065007500
Jan-14 Apr-14 Aug-14 Nov-14 Mar-15 Jun-15 Oct-15CRC 1.0 Galvanized 1.0 Prepainted 0.476 Silicon 600