FERROCHINA, dbs maintain BUY with target price $2.67
-Story FerroChina recently delivered a good set of 2Q08 results whereby
earnings more than tripled to RMB230m on top line growth of 250% yoy to
RMB3.5bn. Interim earnings were up by 186% yoy to RMB419m on revenue
expansion of 206% yoy to RMB6.5bn.
-Point This set of firm results was achieved on the back of the full
consolidation of SuperbTeam¡¦s numbers; improved operational
efficiencies
and higher volumes. At the same time, FerroChina demonstrated its
ability
to fully pass on higher steel costs, as GP per ton actually improved
from
RMB480 in 1Q08 to RMB580 in 2Q08 despite steel prices having risen by
more
than 10% over the same period. Meanwhile, FerroChina remains committed
to
growing its annual production capacity from 3.6m tons in 2009 to 5m
tons by
2011, but this would be dependent on the Group attracting a strategic
investor that can provide both capital and more importantly raw
material
supply for its expansion plans. Management reported that positive
advances
have been made with regards to securing a suitable strategic investor,
which could act as a catalyst for the stock to rerate.
-Relevance With FerroChina delivering a strong set of results that
should
reassure investors of their business model, we roll over our valuation
multiple of 10x to blended FY08/FY09 fully diluted EPS, which
translates to
a 12-month target price of S$2.67. Current valuation at less than 4x
FY09
fully diluted earnings is very attractive. Maintain BUY.