1H21's performance exceeded our expectations.
The company announced 1H21 results: revenue of 75.031 billion yuan, an increase of 48.8% over the same period last year; net profit of 1.521 billion yuan, up 119.5% over the same period last year. Thanks to the rise in volume and profit of the products, the company's performance exceeded expectations.
The volume and profit of steel products have risen, and the profitability has increased significantly. The company's 1H21 achieved steel output of 13.94 million tons, an increase of 21.4% over the same period last year. We estimate that the average selling price of the company's 1H21 steel rose 22.1% to 5183 yuan / ton compared with the same period last year, the cost per ton of steel rose 24.2% to 4603 yuan / ton, and the gross profit per ton of steel rose 42 yuan / ton to 580 yuan / ton compared with the same period last year.
1H21 achieved a net sales interest rate of 2.13%, an increase of 0.64pct over the same period last year, and an increase in profitability.
The output of hunger products increased, but the gross profit margin declined. The company achieved 90300 tons of slag output in the first half of the year, + 3.08% compared with the same period last year, showing a steady upward trend, but the gross profit margin fell 7pct to 15.1%, and the gross profit of 1H21 hungry products fell 12.6% to 112 million yuan.
During the period, the cost was optimized and the cash flow improved significantly. During the first half of the year, the company's expense rate was 8.04%, a decrease of 2.37pct compared with the same period last year, of which the sales and financial expense rates were 0.06% and 4.04% respectively, and the 1.16/0.87pct decreased respectively compared with the same period last year. The main reason is that some sales expenses such as transportation expenses are included in operating costs, as well as the optimization of financial expenses. Thanks to the rise in volume and profit of steel products, the operating cash flow of 1H21 Company was 8.515 billion yuan, an increase of 183.54% over the same period last year.
Trend of development
The compensation for relocating the city is gradually in place, and the company's balance sheet is expected to be optimized. The company received 2.111 billion yuan in relocation compensation in August 2021, accounting for 6.9% of the compensation receivable, and we predict that the rest is expected to be in place gradually by June 30, 2022. As of 1H21's asset-liability ratio of 74.42%, which is at a high level in the industry, we believe that relocation compensation is expected to reduce the company's financial burden and improve profitability.
Steel production restrictions continue, and the company is expected to make a profit in the second half of the year. Recently, the reduction of steel production has progressed steadily. 62% of iron ore prices have fallen to around $130, and steel prices are obviously stronger than mine prices. as steel demand gradually enters the peak season, we believe that industry supply and demand is expected to continue to improve, and the company is expected to make a profit in the second half of the year.
Profit forecast and valuation
Due to the increase in the company's sales and gross margin assumptions, we raised the net profit by 86.8% in 2021 / 2022 by 119.7% to 3.247 billion yuan / 3.633 billion yuan. The company's current share price corresponds to a price-to-earnings ratio of 9.4 times 2021 / 2022. Taking into account the sharp increase in the profitability of the company's products, but with a strong profit cycle, we raised the target price by 31.2% to 3.41 yuan corresponding to 11.2 times 2021 price-to-earnings ratio and 10.0 times 2022 price-to-earnings ratio, which is 19.2% higher than the current stock price and maintains a neutral rating.
Risk
Demand during the peak season was lower than expected; the macro economy fell sharply.
