Raising target price to S$0.25 from S$0.23 (7x CY07 P/E maintained). This sets Delong roughly in line with its Asian peers? historical average. Delong will enjoy the full year benefit from the Dec 06 capacity expansion (from 1.6mt to 2.4mt). Beyond that, we believe there will be enough expansion opportunities (organic and via acquisitions) to catalyse its stock price. A 1.5 Scts dividend representing a 60% payout (vs. our expected 20%) was declared. This will be paid in two tranches (0.6 Scts in May 07 and 0.9 Scts in 2H07). Maintain Outperform.Raising target price to S$0.25 from S$0.23 (7x CY07 P/E maintained). This sets Delong roughly in line with its Asian peers? historical average. Delong will enjoy the full year benefit from the Dec 06 capacity expansion (from 1.6mt to 2.4mt). Beyond that, we believe there will be enough expansion opportunities (organic and via acquisitions) to catalyse its stock price. A 1.5 Scts dividend representing a 60% payout (vs. our expected 20%) was declared. This will be paid in two tranches (0.6 Scts in May 07 and 0.9 Scts in 2H07). Maintain Outperform.

FY07.Capacity expansion will kick in to boost

Delong?s earnings as we see a balanced Chinese steel market stretching into

FY07.

? A multi-year expansion story. Delong will see its capacity expand from 1.6mt to

2.4mt in Dec 06. Expanded capacity has already been fully booked by its

customers and will contribute for a full year in FY07. Utilisation rates are therefore

expected to remain at 100%. Management sees its current mill hitting a demand

saturation point. In a bid to grow earnings, a 500kt cold roll coil plant is slated to be

installed at its current mill by end FY07. Beyond that, Delong plans to expand

through M&A. With over 6,500 mills in China, it has no lack of targets. Expanding

beyond 2.4mt will also give it the economies of scale to expand vertically i.e.

acquire feedstock suppliers or downstream companies.A multi-year expansion story. Delong will see its capacity expand from 1.6mt to

2.4mt in Dec 06. Expanded capacity has already been fully booked by its

customers and will contribute for a full year in FY07. Utilisation rates are therefore

expected to remain at 100%. Management sees its current mill hitting a demand

saturation point. In a bid to grow earnings, a 500kt cold roll coil plant is slated to be

installed at its current mill by end FY07. Beyond that, Delong plans to expand

through M&A. With over 6,500 mills in China, it has no lack of targets. Expanding

beyond 2.4mt will also give it the economies of scale to expand vertically i.e.

acquire feedstock suppliers or downstream companies.

? The steel industry in FY07 is expected to be stable, with consumption closely

matching production. In FY06, Chinese steel production is expected to be roughly

around 415mt (up 16.6% yoy). The Chinese Iron and Steel Association (CISA)

expects this to climb 11% in FY07. At the same time, consumption is expected to

grow 10-13%. With demand looking to be roughly in line with supply, prices are not

expected to fluctuate wildly.The steel industry in FY07 is expected to be stable, with consumption closely

matching production. In FY06, Chinese steel production is expected to be roughly

around 415mt (up 16.6% yoy). The Chinese Iron and Steel Association (CISA)

expects this to climb 11% in FY07. At the same time, consumption is expected to

grow 10-13%. With demand looking to be roughly in line with supply, prices are not

expected to fluctuate wildly.

? Costs not expected to balloon. As a private operator, it successfully kept tight

control over costs and managed to pass on a significant portion of cost pressures in

FY06. GP margin is not likely to decline below 18% for FY07. It was 20% in FY05.Costs not expected to balloon. As a private operator, it successfully kept tight

control over costs and managed to pass on a significant portion of cost pressures in

FY06. GP margin is not likely to decline below 18% for FY07. It was 20% in FY05.

? Target price maintained at S$0.23, based on 6.6x CY07 P/E, in line with Asian

peers. Delong is cheap trading at just 3.9x CY07 P/E and has excellent prospects.Target price maintained at S$0.23, based on 6.6x CY07 P/E, in line with Asian

peers. Delong is cheap trading at just 3.9x CY07 P/E and has excellent prospects.