Company Profile

Wuhan Iron & Steel Co., Ltd. manufactures and markets cold rolled steel plates and silicon steelsheets. The Company also invests in metallurgical technology development and provides relatedtechnical services.

Event

Wuhan Iron and Steel Company Limited announced it made CNY 58.338 billion in revenue in2015, down 41.29% YoY. The net profit attributable shareholders stood at CNY -7.5 billion (netprofit attributable to shareholders was CNY 1.2 billion in 2014).

Revenue of Q1 was CNY 12.89 billion, decreasing by 26.58% YoY. The net profit attributable toshareholders fell sharply (93.41% YoY) to CNY 30.26 million.

We believe the Company’s performance has hit the bottom and may reverse.

Comment

Inventories, especially cold-rolling products, spiked by 22.29% YoY due to sharp drop of sales.(hot-rolling products down 28.66% YoY, cold-rolling products down 16.04% YoY. While theoutput only slightly fell 8.91% and 6.5% respectively). And depreciation of RMB caused anotherCNY 876 million losses. In addition, the Company also suffered CNY 477 million assetimpairment loss.

Holding the most advanced silicon steel milling technology in world, Wuhan Iron and Steel isable to manufacture products functioning better than its peers’. With the implementation ofde-capacity and de-stock policies, it is building new factories to replace the old ones, which willreduce transportation expense and optimize product mix. There is a 2030mm cold productionline under construction in Guangxi Province. It is going to be put into operation in March 2016.We believe this will help Wuhan Iron and Steel further expand in the South of China as well assouth east countries.

Earnings Forecast and Investment Recommendations: Wuhan Iron and Steel is expected tolower the cost of main business to CNY 7.3 billion. Considering its strong technical advantageand large production capacity, we made EPS forecast for the Company at CNY 0.05 in 2016, CNY0.07 in 2017 and CNY 0.13 in 2018, implying 70x/49x/27x PE. Reiterate OUTPERFORM. Netprofit of the three years equals to CNY 498 million, CNY 718 million and CNY 1.29 billionrespectively.

Potential Risks: steel price getting lower, fluctuation of RMB price.