Chung Hung to beat expectations

Posted on 09 August 2018

Source: Taipei Times

Chung Hung Steel Corp (中鴻鋼鐵) could see its earnings continue beating market expectations this quarter thanks to rising hot-rolled steel prices and increasing US steel pipe orders, even though the third quarter is a traditionally slow season, Yuanta Securities Investment Consulting Co (元大投顧) said in an investment note yesterday.

Earnings per share (EPS) might grow 87 percent year-on-year to NT$0.56 this quarter, Yuanta analyst Leo Lee (李侃奇) said.

Taishin Securities Investment Advisory Co (台新投顧) analyst Alan Chen (陳炤綸) was more optimistic, saying in a note that Chung Hung’s EPS might expand to NT$0.76 this quarter.

Both analysts forecast the company’s gross margin and revenue to further increase this quarter on better cost controls of feedstocks and growing shipments of steel products.

The forecasts came after Chung Hung’s board of directors on Tuesday released second-quarter results that showed that the firm’s net profit increased 170.19 percent annually to NT$843.61 million (US$27.55 million), with EPS of NT$0.59, beating analysts’ expectations.

Gross margin rose by 2.9 percentage points to 9.9 percent, and revenue increased 29.7 percent to NT$12.27 billion over the same period.

“Chung Hung enjoyed a hot-rolled steel price hike in the second quarter [up 8.3 percent] on better-than-expected demand recovery, driving its overall margin expansion,” Lee said.

Chung Hung has been seeing increasing sales contribution from foreign markets, especially the US, where an oil export boom driven by resilient crude prices has boosted demand for API steel pipes, Lee added.

In addition, orders for steel pipes transferred from South Korea — after Seoul agreed to cut 30 percent of its exports in exchange for staying on the US government’s exemption list for steel and aluminum tariffs — have also helped Chung Hung secure more orders from the US, he said.

In the first half of this year, Chung Hung shipped an average of 12,000 tonnes of steel pipes per month, up 20 percent annually, with revenue generated from pipe products rising 26.4 percent from a year earlier, Chen estimated, adding that the company could export 20 percent more pipe products this year from 130,000 tonnes last year.

Steel pipes accounted for 8 percent of Chung Hung’s revenue in the first half of this year.

The company’s other main products are hot-rolled steel (70 percent), cold-rolled steel (16 percent) and zinc-galvanized steel (6 percent), according to company data.

Chung Hung reported net profit of NT$1.57 billion for the first half of this year, up 55.95 percent from a year earlier, with EPS of NT$1.1, the highest level for the period in seven years.

During the six-month period, revenue increased 20.04 percent annually to NT$23.39 billion and gross margin improved from 8.54 percent to 9.7 percent.

The company on July 25 announced that it would raise domestic prices for this month’s shipments and export prices for next month deliveries, saying that market sentiment in the sector has improved and the costs of feedstock, such as steel billet, continue to rise.

In terms of domestic products, prices of hot-rolled coils and zinc-galvanized sheets would increase by NT$350 per tonne this month, with prices of cold-rolled items increasing by NT$200 per tonne, Chung Hung said.

As for export items, prices are to increase by US$10 per tonne on average next month, it said. 

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