Baosteel and Wuhan Iron and Steel stocks resume trading today
Yesterday, Baosteel Group announced that Baosteel and Wuhan Iron and Steel Co., Ltd. will resume trading on the 10th. At the same time, Baosteel Co., Ltd. and Wuhan Iron and Steel Co., Ltd. announced their reply to the inquiry letter from the Shanghai Stock Exchange, re-emphasizing the synergy effect of Baosteel United in procurement, sales, product research and development, and technological innovation. Baosteel Group stated that the stock price performance after the resumption of trading is worth looking forward to.
Since the announcement of the Baowu joint transaction plan, overseas well-known research institutions including Goldman Sachs, Morgan Stanley, Citigroup, Merrill Lynch, Deutsche Bank, and Changjiang Securities, Zhongtai Securities, and Industrial Securities have all issued research reports, expressing their interest in the merger of Baosteel and Wuhan Iron and Steel. Recognition of the significance and influence of Baosteel, as well as expectations for the gradual development of the synergistic effects of Baosteel and Wuhan Iron and Steel in the future.
In the three months since Baosteel and Wuhan Iron and Steel were suspended from trading at the end of June, domestic steel prices have risen by an average of 15%, Shanghai A-shares have risen by 7%, and the stock prices of other listed companies in the steel sector have risen by 10%-20%. From the perspective of valuation, Baosteel’s P/E ratio is only about 11 times. After the merger of WISCO, the PB multiple is still low, and the valuation level is very attractive.
The reporter was informed that the conversion price of Baosteel Co., Ltd. was 4.6 yuan per share, and that of Wuhan Iron and Steel Co., Ltd. was 2.58 yuan per share. All existing assets, liabilities, businesses, personnel, contracts, qualifications, and all other rights and obligations of Wuhan Iron and Steel Co., Ltd. shall be undertaken and inherited by Wuhan Iron and Steel Co., Ltd., and 100% equity of Wuhan Iron and Steel Co., Ltd. will be controlled by Baosteel Co., Ltd. from the delivery date. According to the company’s announcement, after the transaction, the combined listed company has become one of the most competitive steel companies in the world through a strong alliance.
According to the introduction of both parties, Baosteel Co., Ltd. has cut costs by approximately 3.8 billion yuan due to continuous internal cost reduction, product structure optimization, and market development efforts in the first half of this year, and the overall gross profit margin of the segment business has achieved a substantial increase compared with 2015.
In the first half of the year, Baosteel Co., Ltd. delivered a dazzling report card and achieved a net profit of 3.62 billion yuan, making it the steel company with the strongest profitability in China. WISCO achieved a net profit of 273 million yuan in the first half of the year, a substantial turnaround from last year’s 7.5 billion loss, which also left a lot of room for imagination in the future integration of the two.
In order to actively respond to the country’s supply-side structural reforms and the iron and steel industry’s overcapacity reduction policy, Baosteel Co., Ltd. and Wuhan Iron and Steel Co., Ltd. will also strive to complete the above-mentioned two-year overcapacity reduction target task ahead of schedule by the end of 2016. At present, the assets and liabilities related to overcapacity reduction have been properly disposed of as planned and the corresponding financial treatments have been carried out, and relevant personnel has also made a resettlement plan on schedule, which will not bring uncertain effects to the subsequent operations of the listed company.