Where was third-quarter performance strong, and where was it weak?

  • Baoshan Iron & Steel’s net profit in the third quarter of 2026 was 2.17 billion yuan, above Morgan Stanley’s forecast, but down 7.7% quarter on quarter and 29.7% year on year. Net profit for the first three quarters was 6.74 billion yuan, down 15.3% year on year.
  • Recurring net profit in the third quarter was 1.96 billion yuan, down 40.5% year on year; the main non-recurring item for the quarter was a gain of 229 million yuan from asset disposals. Management attributed the year-on-year weakness in profit to the recovery in steel prices lagging the rise in raw-material prices.

Why did gross profit per tonne beat expectations?

  • Morgan Stanley estimates that third-quarter gross profit per tonne in the steel business rose by about 4 yuan quarter on quarter to 198 yuan, clearly outperforming peers and exceeding the bank’s expectations. The average selling price of steel fell by about 11 yuan per tonne quarter on quarter, less than expected; despite higher raw-material prices, unit costs fell by about 15 yuan per tonne quarter on quarter.
  • The bank believes continued growth in exports and differentiated products may explain the stronger gross profit per tonne. Export orders reached 5.87 million tonnes in the first three quarters, up 13.6% year on year, an increase of 704 thousand tonnes; sales of “2+2+N” products reached 26.81 million tonnes, up 1.12 million tonnes year on year.

How did sales volumes and non-steel businesses affect overall performance?

  • Steel sales in the third quarter were 13.47 million tonnes, up 3% quarter on quarter but down 3.5% year on year against a high base in the same period last year; cumulative sales for the first three quarters were 39.15 million tonnes.
  • Gross profit from non-steel businesses weighed on overall performance: combined gross profit fell by 117 million yuan quarter on quarter and by 303 million yuan year on year in the third quarter. Of this, gross profit from processing and distribution was 950 million yuan, broadly flat quarter on quarter and down 240 million yuan year on year; gross profit from other businesses was 969 million yuan, down 126 million yuan quarter on quarter.

Why does Morgan Stanley value the dividend?

  • The bank believes the company’s operational resilience and relatively high dividend yield provide some defensiveness amid market volatility. Its dividend policy for 2024–2026 sets a minimum payout ratio of 50% and a minimum dividend of 0.2 yuan per share; two insurance companies joined its top ten shareholders in the third quarter.
  • Morgan Stanley rates Baoshan Iron & Steel Overweight, with a target price of 6.90 yuan, implying 15% upside from the closing price of 6.00 yuan on 27 October 2026. The bank notes that a further slowdown in auto sales could weaken demand for automotive steel, while environmental production curbs falling short of expectations are another downside risk.