Renewable Energy And Urbanization In Asia Will Ignite Steel Demand

Key Takeaways

• Rapid expansion into high-margin, specialized steels and aggressive cost reforms position Maanshan for swift gains in pricing power, net margins, and operating cash flow.
  
• Strong alignment with infrastructure and renewables demand, product innovation, and strategic divestments set the stage for sustained revenue growth and increased market share.
  
• Structural overcapacity, weak demand, lack of product differentiation, high input costs, and rising financial risk threaten the company's profitability and adaptability in a challenging market.

Catalysts

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

• While analysts broadly agree that Maanshan's expansion into high-spec special steels and downstream markets will gradually support top-line growth, this could be significantly understated; with phase two of the special steel project near completion and product certifications advancing, Maanshan can rapidly accelerate its high-margin product mix and attain a step-change in average selling prices and net margins within the next two years, rather than over a drawn-out transition period.
  
• The analyst consensus views ongoing cost optimization and digital transformation as supporting gradual margin improvement, but recent deep reforms-such as closure of low-utilization production lines, aggressive procurement optimization, and integration within Baowu's platform-should yield a swift and large reduction in production costs and working capital requirements, driving an outsized EBITDA expansion and improved operating cash flow in the near term.
  
• With continued and massive government investment in large-scale renewable energy, urbanization, and infrastructure projects in China's Yangtze River Delta and Southeast Asia, Maanshan is perfectly positioned to secure exceptionally strong order flows for steel inputs to wind, solar, EV, high-speed rail, and marine applications, pointing to a supercycle in core revenues and sustained high capacity utilization beyond current analyst expectations.
  
• Maanshan's demonstrated commitment to R&D and product innovation, including advances in wheel, bearing, and marine-grade steels, is creating barriers to entry and industry-leading intellectual property, setting the stage for long-term export expansion, premium market share gains, and structural improvements in both revenues and net margins.
  
• The prospect of further industry consolidation and asset rationalization-combined with Maanshan's ongoing divestment of underperforming assets and strategic realignment as a "Baowu cluster center"-suggests a scenario where market share gains, enhanced pricing power, and a structurally leaner cost base drive a powerful uplift in both near and long-term earnings.

Maanshan Iron & Steel Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Maanshan Iron & Steel compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Maanshan Iron & Steel's revenue will grow by 4.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -4.7% today to 5.5% in 3 years time.
• The bullish analysts expect earnings to reach CN¥4.8 billion (and earnings per share of CN¥0.61) by about September 2028, up from CN¥-3.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 5.1x on those 2028 earnings, up from -5.0x today. This future PE is lower than the current PE for the HK Metals and Mining industry at 13.0x.
• 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 7.87%, as per the Simply Wall St company report.

Maanshan Iron & Steel Future Earnings Per Share Growth

Risks

• The company is facing persistent industry-wide overcapacity and low utilization rates, with 26.8% of production lines operating below 75% utilization and some as low as 50%, which structurally undermines net margins and contributes to sustained earnings volatility.
  
• MA Steel continues to experience declining demand for steel in China, driven by a multi-year contraction in real estate and infrastructure investment, leading to a 17.3% year-on-year drop in operating revenue and pointing to substantial long-term risks for the company's top line revenue.
  
• Its high reliance on commodity-grade steel and insufficient progress in product differentiation means pricing power remains weak, leaving earnings exposed to ongoing margin compression and cyclical swings in steel prices.
  
• The company maintains high raw material and energy costs, with raw materials and fuel making up more than 80% of operating costs and a dependence on imported iron ore and coal, making net margins highly vulnerable to global input price inflation and supply chain disruptions.
  
• MA Steel's elevated gearing ratio and increased net loss of 4.6 billion yuan (up 251% year-on-year) signal rising financial risk and limited flexibility to invest in modernization, which could further depress future earnings and the company's ability to adapt to industry transformation and policy-driven consolidation.

Valuation

• The assumed bullish price target for Maanshan Iron & Steel is HK$2.8, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Maanshan Iron & Steel's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$2.8, and the most bearish reporting a price target of just HK$1.96.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥87.7 billion, earnings will come to CN¥4.8 billion, and it would be trading on a PE ratio of 5.1x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of HK$2.54, the bullish analyst price target of HK$2.8 is 9.3% higher.
  
• 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.