METALLURGICAL CORPORATION OF CHINA(601618)：NEW ORDERS DECLINE;CASH OUTFLOWS CONTINUE

机构：中金公司
研究员：Yan CHEN/Qing GONG/Maoda YANG

　　1Q25 results in line with our expectations
　　Metallurgical Corporation of China announced its 1Q25 results: Revenue fell 18.46% YoY to Rmb122.27bn and net profit attributable to shareholders fell 40.00% YoY to Rmb1.61bn. The firm's 1Q25 results are in line with our expectations.
　　Gross margin improved slightly; expense ratio edged up. In 1Q25, the
　　firm's blended gross margin rose 0.7ppt YoY to 8.8%. Overall expense ratio rose 1.0ppt YoY to 5.6% in 1Q25, with selling, G&A, R&D, and financial expense ratios up 0.1ppt, 0.4ppt, 0.4ppt, and 0.1ppt YoY to 0.5%, 2.5%, 2.3%, and 0.3%.
　　Larger impairment losses and higher income tax expenses weighed
　　on earnings. In 1Q25, the firm's asset and credit impairment losses totaled Rmb923mn (vs. Rmb916mn in 1Q24), and its income tax expense was about Rmb532mn (implying an effective tax rate of 20.4%, slightly higher than the 19.1% in 1Q24), weighing on the company's earnings. In 1Q25, attributable net profit margin fell 0.5ppt YoY to 1.3%.
　　Operating cash outflows narrowed YoY. In 1Q25, the firm's operating
　　cash flow continued to see outflows of Rmb25.70bn, which narrowed compared to net outflows of Rmb30.75bn a year earlier, but the net outflows remain large, indicating heavy cash flow pressure.
　　Trends to watch Weak industry demand; new contracts decline YoY. In 1Q25, the firm's
　　new contracts fell 27.2% YoY to Rmb230.66bn, with new overseas contracts down 35.7% YoY to Rmb12.04bn. Specifically, new contracts for metallurgical engineering, housing construction engineering, municipal & infrastructure construction, and industrial manufacturing changed -37.2%, -42.4%, -14.1%, and +12.3% YoY to Rmb31.27bn, Rmb92.29bn, Rmb35.67bn, and Rmb49.09bn. Amid falling industry demand, we believe the firm's new contract growth and conversion of contracts into revenue may come under pressure, which may pose challenges for its future earnings.
　　Financials and valuation
　　We keep our 2025 and 2026 attributable net profit largely unchanged at Rmb7.82bn and Rmb8.22bn. A-shares are trading at 7.7x 2025e and 7.3x 2026e P/E. H-shares are trading at 3.7x 2025e and 3.4x 2026e P/E. We　　maintain an OUTPERFORM rating and a target price of Rmb3.9 for A- shares, implying 10.3x 2025e and 9.8x 2026e P/E, implying 34.9% upside.
　　We maintain an OUTPERFORM rating and a target price of HK$2.0 for H- shares, implying 5.0x 2025e and 4.7x 2026e P/E, offering 36.1% upside.
　　Risks
　　Disappointing progress in projects; impairment pressure worse than expected.