China Basic Materials Monthly

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 22 October 2010Asia Pacific/China&Hong KongEquity ResearchMetals & Mining China Basic Materials Monthly MONTHLY October 2010 – firm demand Figure 1: Our channel checks on downstream sectors MoM order book trend 57%42%46%62%67%55%50%75%70%50%100%45%10%25%0%25%71%80%85%83%17%8%21%23%54%15%8%18%20%25%0%0%45%90%50%25%50%14%20%50%Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10% of respondents seeing improving MoM order book% of respondents seeing declining MoM order bookSource: Company data, Credit Suisse estimates ■ Channel checks on demand. Based on our proprietary demand survey, we expect the near-term order book trend to continue to improve. Feedback from producers in mid-October suggests: 1) The MoM trend for forward order books of finished goods remains positive, with respondents expecting a sequential improvement remaining firm at 80% in October versus 71% in September, and respondents expecting a declining MoM trend at 20% in October versus 14% in September; and 2) materials demand is improving for coal, is flat for steel, but is slightly softer for cement (as northern China moves away from the peak season). The percentage of producers expecting improving MoM demand is 33% for coal producers (up from 0% in September), 50% for steel mills (flat as in September), and 60% for cement producers (down from 100% in September). ■ Top picks: our top picks are CR cement and Chinacoal. ■ Steel: expect positive momentum to continue ■ Coal: winter restocking? ■ Cement: power restriction continues ■ Aluminium: seasonal pick up in semi output ■ Alumina: higher long-term pricing ■ Copper: semi output softened Research Analysts Trina Chen 852 2101 7031 trina.chen@credit-suisse.com Qingyuan Zhou 852 2101 6200 qingyuan.zhou@credit-suisse.com Frankie Zhu 852 2101 7426 frankie.zhu@credit-suisse.com Asia Metals & Mining Research Analysts Trina Chen (Head of Metals and Mining, China) Hocheol Kim (Korea) Neelkanth Mishra (India) Anand Agarwal (India) Anubhav Aggarwal (India) Riya Bhattacharya (India) Arief Wana (Indonesia) Fonny Surya (Indonesia) Seungwoo Hong (Korea) Ho Kim (Korea) Paworamon (Poom) Suvarnatemee, CFA (Thailand) Puchong Kometsopha (Thailand) Siriporn Sothikul (Thailand) Sidney Yeh (Taiwan) David Liao (Taiwan) 22 October 2010 China Basic Materials Monthly 2 NJA basic materials stocks (Credit Suisse coverage) Figure 2: Valuation and performance comparison – Credit Suisse estimates versus consensus Rat- Target Mkt cap EPS P/E (x) P/B (x) EV/EBITDA (x) Abs. perf. (%) Rel. perf. (%) Company Ticker ing price Price Ccy (US$ mn) 09A 10E 11E 09A 10E 11E 09A 10E 11E 09A 10E 11E 1M 3M YTD 1M 3M YTD Steel Maanshan 0323.HK N 5.0 4.9 HK$ 4821 0.05 0.23 0.32 82 18 13 1.2 1.1 1.1 5 6 5 3 26 -14 -8 9 -21 0.05 0.21 0.30 82 20 14 1.2 1.2 1.1 5 6 5 Angang 0347.HK O 13.5 13.3 HK$ 12357 0.10 0.59 0.72 n.a. 19 16 1.6 1.5 1.4 11 8 8 5 13 -23 -7 -3 -29 0.10 0.60 0.86 n.a. 19 13 1.6 1.5 1.4 11 8 7 Baosteel 600019.SS O 8.5 7.3 RMB 19222 0.33 0.73 0.80 22 10 9 1.3 1.1 1.1 6 5 4 12 17 -24 -3 -1 -15 0.33 0.63 0.73 22 12 10 1.3 1.2 1.1 6 6 5 Wuhan 600005.SS N 7.0 5.2 RMB 6105 0.18 0.56 0.70 28 9 7 1.5 1.3 1.2 6 4 4 15 13 -37 -1 -5 -28 0.18 0.26 0.41 28 20 13 1.5 1.4 1.3 6 5 5 Panzhihua 000629.SZ U 4.7 8.6 RMB 4286 -0.15 0.14 0.40 n.a. 60 22 3.3 3.1 2.7 29 10 6 3 5 12 -13 -12 21 -0.15 0.14 0.30 n.a. 61 29 3.3 3.1 2.7 29 16 10 Dong Kuk 001230.KS N 25K 27K W 1456 0.8K 3.8K 2.9K 33 7 9 0.6 0.5 0.5 8 7 7 6 8 -1 3 1 -13 0.8K 3.8K 4K 33 7 7 0.6 0.6 0.5 8 5 5 Hyundai Steel 004020.KS U 77K 108K W 8122 13.5K 8.9K 7.2K 8 12 15 1.4 1.3 1.2 16 14 13 -6 4 24 -8 -3 13 13.5K 10K 12.2K 8 11 9 1.4 1.3 1.1 16 10 7 POSCO 005490.KS O 675K 485K W 37446 36.4K 56.4K 61.6K 13 9 8 1.4 1.2 1.1 8 6 5 -4 -5 -22 -6 -12 -33 36.4K 55.9K 59.4K 13 9 8 1.4 1.2 1.1 8 6 5 JSW Steel Ltd JSTL.BO U 880 1266 Rs 5344 14.7 85.4 76.9 n.a. 15 17 3.0 2.6 1.9 13 10 8 0 8 25 -1 -4 8 14.7 85.2 131.2 n.a. 15 10 3.0 1.9 1.5 13 9 6 Steel Authority SAIL.BO U 165.0 221.0 Rs 20601 14.9 16.3 15.0 15 14 15 3.3 2.7 2.4 9 9 10 8