(Bloomberg) -- With Chinese steel prices down 13 percent since the announcement of U.S. tariffs and persistent fears of oversupply, there may be no investment play more contrarian right now than a Chinese steel company.
But Delong Holdings Ltd.'s fundamentals may yet lure investors into an industry grappling with excess supply and geopolitical ructions. The Singapore-listed Chinese steelmaker has negative net debt as well as price-to-free-cash flow and price-to-book ratios less than one. Its operating margin was third highest of any of its domestic competitors last year and its stock has momentum, trading above its 100- and 200-day moving averages.
Evraz Plc, a Russian steelmaker that has a 15% stake in Delong, believes investors have overlooked the Beijing-headquartered firm. In a December interview, Evraz Corporate Strategy Director Aleksey Eberents said Delong's fair value could be more than $4 billion. Delong's market capitalization at the time was about $200 million and it currently trades at almost $340 million; its share price having risen about 50% year-to-date.
Delong, whose sales are primarily domestic, saw average selling prices for its products rise last year as steel supply tightened on China's moves to curb output. The company has said it is seeking to diversify into asset management business "in due course".
--With assistance from Livia Yap
To contact the reporter on this story: Brandon Kochkodin in New York at bkochkodin@bloomberg.net.
To contact the editors responsible for this story: Sebastian Tong at stong41@bloomberg.net, Joe Weisenthal at jweisenthal@bloomberg.net, Jake Lloyd-Smith
©2018 Bloomberg L.P.
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