Urbanization And Belt And Road Will Drive Future Steel Demand

Key Takeaways

• Focus on higher-value steel products, green manufacturing, and digitalization is expected to boost margins, enhance pricing power, and support long-term profitability.
  
• Diversification into export markets and advanced steel applications should reduce reliance on the domestic construction sector and create more resilient revenue streams.
  
• Prolonged weak demand, overcapacity, high costs, limited innovation, and stricter regulations threaten profitability and long-term competitiveness in both domestic and global steel markets.

Catalysts

Manufactures and sells iron and steel products, and related by-products in Mainland China, Hong Kong, and internationally.

• The ongoing expansion of urbanization and infrastructure development in China's Yangtze River Delta and Southeast Asia, combined with targeted national strategies for regional integration and manufacturing upgrades, is expected to drive underlying demand for construction, transportation, and specialty steels, supporting Maanshan Iron & Steel's future revenue growth and higher utilization rates.
  
• Maanshan is accelerating its product upgrade strategy by increasing the share of special steel, automotive, and high-margin flat/galvanized products, as well as expanding new energy and marine steel applications; this focus on advanced downstream markets should improve average selling prices and net margins over time.
  
• The company is investing heavily in cost optimization via supply chain integration (including increased use of low-cost, lower-grade ores), digitalized manufacturing, supply chain management reforms, and strategic partnerships within the Baowu Group, supporting EBITDA margin recovery and more stable earnings.
  
• Management is adopting green manufacturing and accelerating investment in ultra-low emission and "zero waste" initiatives, positioning the company to capture premium pricing in green steel segments and to avoid future regulatory penalties or loss of market access, positively impacting long-term profitability.
  
• The company is rapidly expanding export markets, leveraging China's Belt and Road Initiative and overseas sales platforms to diversify revenue streams away from the structurally weaker domestic construction sector, which will likely contribute to greater revenue resilience and improved asset utilization.

Maanshan Iron & Steel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Maanshan Iron & Steel's revenue will decrease by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.6% today to 3.8% in 3 years time.
• Analysts expect earnings to reach CN¥3.0 billion (and earnings per share of CN¥0.13) by about July 2028, up from CN¥-4.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.6x on those 2028 earnings, up from -3.1x today. This future PE is lower than the current PE for the HK Metals and Mining industry at 10.5x.
• Analysts expect the number of shares outstanding to decline by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

Maanshan Iron & Steel Future Earnings Per Share Growth

Risks

• Structural slowdown in domestic demand: China's steel consumption has declined for four consecutive years, driven by protracted weakness in the real estate sector and broader structural shifts such as urbanization plateauing and an aging population. This trend undermines long-term revenue growth prospects for Maanshan Iron & Steel.
  
• Persistent overcapacity and inefficient operations: Utilization rates for key production lines remain low (with several lines below 75% capacity), balanced against ongoing industry-wide overcapacity. This structural inefficiency compresses net margins and hampers long-term earnings stability.
  
• Rising cost pressures and supply chain risks: Raw materials and fuel account for over 80% of the company's operating costs, with heavy dependence on imported iron ore (around 76% from overseas, mainly Australia). Ongoing price fluctuations, supply chain vulnerabilities, and minimal captive resource integration increase cost volatility and threaten earnings resilience.
  
• Lagging innovation and slow green transition: The company acknowledges insufficient support from technological innovation in both cost reduction and product development. Delays in product certification and slow progress upgrading to higher value-added/green steels could lead to further margin contraction, increased compliance costs, and long-term loss of market share.
  
• Intensifying competition and regulatory pressures: The steel sector is transitioning from incremental growth to stock competition, with increasing product homogeneity and price wars domestically and internationally. Additionally, higher environmental, safety, and carbon compliance requirements will elevate operating costs and require ongoing capital expenditure, eroding profitability and return on equity.

Valuation

• The analysts have a consensus price target of HK$1.892 for Maanshan Iron & Steel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$2.3, and the most bearish reporting a price target of just HK$1.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥78.4 billion, earnings will come to CN¥3.0 billion, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of HK$2.0, the analyst price target of HK$1.89 is 5.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.