Angang New Steel, the publicly traded unit of China’s second-biggest steelmaker Anshan Iron & Steel Group Complex, looks set to emerge from the current round of steel sector consolidation as a major player.
It got a jump on its competitors in early 2006 by winning approval from the China Securities Regulatory Commission to purchase US$2.44 billion in steel assets from its parent company in a share and cash deal. Many saw this as a reward for it being the first A- and H-share listed company to announce a share reform plan. The acquisition will transform Angang from a steel processor into an integrated steel producer, expanding its product range and capacity. A solid balance sheet will ensure it is well placed for future mergers and acquisitions.
In recent years, a steel glut, falling prices and soaring iron ore prices have combined to erode both the margins and the short-term outlook of the nation’s steel producers. But with consolidation comes stability, making over-supply less likely in the future. Angang is in a strong position to ride out current threats in the sector. With 60% to 70% of its iron ore needs being met by its parent’s mines, rising prices may take a lesser toll. And due to its focus on processing, Angang is expected to suffer less margin erosion from falling steel prices than pure steel producers. Losses from cold-rolled sheet products will be offset by a fall in the price of the hot-rolled sheet used to make them.
INFORMATION, TELECOMS AND TECHNOLOGY
Shenzhen ZTE Corp Ltd 000063.SZ
China’s largest listed telecommunications equipment manufacturer and wireless communications provider is growing strongly and rapidly under adept management. If it can capitalize on its advantages, ZTE is well placed to emerge as a world leader in telecommunications.
ZTE already has global standing, having positioned itself in 60 countries, offering wireless telecommunications infrastructure – about 70% of total revenues – mobile phone handsets, and wireless switch and access systems. It aims to secure 40% of revenues from international operations by the end of 2006. It recently formed an agreement with Cisco to work together on solutions for NGN, 3G and data technologies and also has an agreement with Alcatel to supply CDMA network equipment.
The key to its success is strong R&D – it has a huge pool of engineering graduates who command much lower salaries than in the developed world, keeping R&D costs about 20-30% cheaper than those faced by its EU and US competitors. It is not all plain sailing for ZTE, though. 3G licensing delays have slowed capital spending by telecoms operators since 2004, affecting the company’s balance sheet. ZTE also faces fierce competition from fellow Shenzhen-based company Huawei, which currently leads ZTE in terms of total revenue. But ZTE’s larger domestic market share and secondary listing in Hong Kong, which revitalized its management structures, should give it the edge going forward.