The Zhitong Finance App learned that UBS said in a research report released recently that due to the implementation of various import restrictions related to the steel industry, market concerns about Tiangong International (00826)'s export business to the EU have intensified, which has led to a correction in the stock price. UBS said that after reviewing these measures and discussing them with the company's management, the bank believes that the potential impact of the relevant measures on Tiangong International has been excessively magnified. The bank maintains Tiangong International's “buy” rating, with a target price of HK$5.00.
Carbon border adjustment mechanism (CBAM): lower carbon emissions, higher sales prices, limited impact
UBS pointed out that the carbon border adjustment mechanism (CBAM) extends the carbon price of the EU Carbon Emissions Trading System (ETS) to imported products, requiring importers to purchase carbon certificates based on the carbon emissions contained in imported products, thus making producers within and outside the EU bear considerable carbon costs. The mechanism will be implemented starting in 2027.
However, given Tiangong International's low carbon emissions levels and high sales prices, UBS expects the mechanism to have limited impact on the company in the short term and may bring potential benefits in the long run.
In terms of carbon emissions, thanks to Tiangong International's adoption of a short-process, environmentally friendly electric arc furnace (EAF) production model, the company's carbon emission level is relatively low according to Bureau Veritas (Bureau Veritas) certification. UBS believes that its emissions may be lower than the relevant EU standards, so the CBAM-related charges it faces may be limited or even unnecessary. In contrast, UBS believes that as CBAM requirements become more stringent, Tiangong International is expected to usher in opportunities for industry consolidation, as domestic peers, especially smaller producers, may not be able to meet relevant emission standards.
In terms of price, compared with commodity steels, die steel and high-speed steel are much more expensive, with a comprehensive average selling price (ASP) of $3,000 to $4,000 per ton. Therefore, even if CBAM eventually levies potential carbon costs, the additional costs will be a small proportion of the sales price. For example, the current cost of carbon dioxide emissions per ton exceeding the relevant benchmark is around 80 euros.
Quick response trade instruments: low market share, reasonable pricing, manageable risk
France and Germany announced the proposed EU Quick Response Trade Tool in October 2026, aimed at speeding up trade defense measures against systemic market distortions. These market distortions include subsidies, industrial overcapacity, dumping, and other unfair competition practices, particularly for strategically important industries such as steel, chemicals, automobiles, and industrial manufacturing.
Even if the tool is finally approved, UBS believes that the risks faced by Tiangong International are generally manageable. The reasons include:
1) Low share in the EU market: According to management, Tiangong International's share of the EU mold steel and high-speed steel market is 10% to 15%, lower than its main European competitors.
2) Sales prices are comparable to local peers: The company's pricing is comparable, and there are no obvious price advantages or competitive characteristics at low prices.
3) Limited reliance on government subsidies: The risk of companies being affected by relevant subsidy investigations is relatively low.
4) Successfully obtained an exemption from investigation: In 2016, Tiangong International was successfully excluded from EU anti-dumping and countervailing investigations.
Import quota control under EU steel safeguard measures
Although the overall import quota was reduced by 47% to 18.3 million tons per year, Tiangong International's sales volume in the EU is only 3,000 to 4,000 tons per month, accounting for only 0.3% of the total quota. Under the current quota system, the company's share is still very small, which indicates that it is directly affected by stricter import restrictions to a limited extent.
valuation
UBS pointed out that after the recent stock price correction, Tiangong International's current projected price-earnings ratio (P/E) for 2027 is 7 times, while the company's projected net profit growth rates for 2026 and 2027 are 49% and 35%, respectively. The bank anticipates that the company's export momentum will continue to be strong in the second half of 2026, and sees the current valuation as very attractive. The target price of HK$5.00 for the share corresponds to 15 times the projected price-earnings ratio for 2027.