Main points of investment
Event: the company announces 2021H1 results. 2021H1 achieved revenue of 31.082 billion yuan, + 35.72% year-on-year; net profit of 2.729 billion yuan, + 132.21%, and non-return net profit of 2.674 billion yuan, + 158.24% compared with the same period last year. From a quarterly point of view, 2021Q2, the company achieved revenue of 16.559 billion yuan, year-on-year + 35.19%, month-on-month + 14.02%; return-to-mother net profit of 1.805 billion yuan, year-on-year + 169.00%, month-on-month + 95.44%; deduction of non-return net profit of 1.792 billion yuan, year-on-year + 231.65%, month-on-month + 103.24%. The performance is in line with expectations.
Comments: both volume and price have risen, and the profit performance is eye-catching.
Both volume and price rose, and the revenue reached a new high in half a year. (1) the company's 2021H1 sells 6.5735 million tons of steel, + 3.79% compared with the same period last year, including 4.5823 million tons of building materials and 1.9912 million tons of industrial materials. (2) the average tax-free selling price of 2021H1 steel products is expected to increase by 38.20% compared with the same period last year, and the gross profit margin is + 4.2pct year-on-year. The iron and steel industry maintained a high demeanor, and the rise in volume and price drove the company's semi-annual operating income to an all-time high.
(2) the cost control is excellent, and the increase of the production cost per ton of steel is lower than that of the main raw materials. There was a big increase in raw materials in the first half of the year, including iron ore prices + 84.53% year-on-year and coke prices + 40.35% year-on-year. The company has achieved fruitful cost control and strives to strengthen cooperation with the International Association of long-term Mines, domestic high-quality mines, coal and coke manufacturers and high-quality scrap supply enterprises to ensure a balanced and stable supply channel of raw materials. In the case of the sharp rise in raw material prices since the beginning of this year, the company gives full play to the advantages of coastal steel enterprises in transportation costs and chooses the opportunity to purchase cost-effective iron ore and coal coke. We estimate that the company's production cost per ton of steel is + 38.80% compared with the same period last year, which is much lower than the price increase of major raw materials.
(3) the regional leader has a prominent dominant position. From January to July 2021, fixed asset investment in Fujian Province increased by 10.1% compared with the same period last year, and it is expected to maintain rapid growth in the second half of the year. Fujian steel demand is expected to continue to improve. In 2020, the company's market share of building materials, medium plate and round steel in Fujian Province is 54%, 80% and 70% respectively. The average prices of Minguang building materials and general board in the province are respectively higher than those in the surrounding provinces, and the strong position of the regional leader is prominent.
The core points of the future:
1 Luoyuan Minguang H-beam project is in the stage of equipment commissioning. The products of this project are medium-sized H-section steel lacking in Fujian Province and its surrounding markets, with an annual output of 1.3 million tons. After it is put into production, it will further increase the company's production capacity and market share in the province.
(2) the first phase of the coke oven upgrading project of Sanming headquarters, Quanzhou Minguang sintering machine has been put into production to speed up the replacement of production capacity.
Performance forecast: the transformation of ultra-low emissions has been further promoted, capacity replacement standards have become stricter and domestic steel production capacity has been effectively regulated, and demand toughness is expected to support steel prices to remain high. We adjust our profit forecast for the company, and it is expected that the company will achieve a net profit of 5.395 billion yuan, 5.817 billion yuan and 6.259 billion yuan from 2021 to 2023, corresponding to EPS of 2.20,2.37,2.55 yuan respectively, and 4.1,3.8,3.5 times of the current stock price (August 19), respectively, maintaining the company's "prudent overweight" rating.
Risk hints: lower-than-expected demand, higher-than-expected price increases in raw materials, and macro risks