EUR 150.00 For Business Accounts Only

JSW SA: Buy on robust steel demand and global met-coal supply tightness

We reiterate our recommendation for JSW with a BUY rating though we trim our FV to PLN 102.6 (from PLN 114.27) which implies 32% upside mainly on upbeat prospects for coking coal prices for the remainder of 2018 and JSW’s robust met-coal production stepped up by a few investment project ramp-ups in 2019. We assume an average HCC benchmark price for 2018 at USD198 vs USD170 in our previous report mainly on the assumption that stimulating the construction market, which is the biggest steel off-taker, is one of the few measures left to the Chinese central authorities in their attempt to lend support to GDP growth. This seems particularly legitimate as China’s economic growth may soon start to cave in to US tariffs or deleveraging measures. Along with strong demand for coking-coal, we expect met-coal supply to remain constrained by Aurizon’s spat with the Queensland Competition Authority dashing hopes of a yoy increase in Australian export capacity along with low yoy production in China and other countries as industry CAPEX in the last couple of years has lagged behind. Another factor working in favour of JSW is the dividend reinstatement from 2019 on. Even though we forecast JSW to expense around PLN 2bn this year on maintenance, new projects and the PBSz acquisition, we assume 2019 DPS to come in around PLN 3.34 per share, i.e. a 4.5% DY.