1H15 earnings slightly below. 1H15 net profit increased by1% y-o-y to Rmb3,174mn accounting for 47%/48% ofour/consensus FY15F. Gross profit was 10% below ourexpectations mainly because sales volume disappointed. 1H15steel sales volume was 10.7mt (-5% y-o-y) vs our forecast of11.5mt. Sales revenue decreased 17% y-o-y to Rmb80.9bn dueto lower steel sales volume and ASP as well. Unit steel GP wasRmb585/t vs Rmb536/t a year earlier as decline in unitproduction cost (-18% y-o-y) more than offset weaker ASP (-15% y-o-y) thanks to sluggish iron ore (-44% y-o-y) and cokingcoal price (-20.5% y-o-y). E-commerce growth on track. 1H15 sales revenue rose 27%supported by sales volume expansion by 63% to 2.91mt,contributing to c.10% of company’s total turnover. EasternTenpay (granted third-party service license) made a breakthroughfor online payment service which registered third-party paymentsof Rmb18.5bn. Ouyeel, the e-commerce platform was grantedup to 50mt warehouse storage capacity and obtained unusedbank credit facility of Rmb160bn. Cut FY15/16F earnings by 40%/19% to mainly reflectRmb2bn FX loss in 3Q15. Baosteel warned of potential FXlosses of Rmb2bn based on the revaluation of the company’sUS$ and EU denominated debts as Rmb:USD has depreciated by3% in mid August. We cut FY15/16F core earnings by 19%/26%to impute lower full-year steel GP of Rmb537/t vs Rmb579/tpreviously. According to the company, US$ debts equivalent toRmb5bn have been hedged. Assuming there is no significantdepreciation of the Rmb against US$, all FX losses should berecognised in 3Q15 results. Maintain BUY, TP cut to Rmb9.09. Our new TP represents 1.3xFY15F P/BV, or 36.6x FY15F PE including FX losses and 27xFY15F PE based on core earnings. We set our target market capat Rmb149bn based on i) market cap of Rmb90.6bn(Rmb6.03/sh) for steel business, pegged to 0.78x FY15F P/BV,and ii) a market cap of Rmb50.5bn (Rmb3.06/sh) for e-commerce,pegged at 1.7x FY15F P/Sales.