1H21's performance exceeded our expectations.
The company announced 1H21 results: revenue of 72.551 billion yuan, an increase of 62.5% over the same period last year; net profit of 5.183 billion yuan, an increase of 936.6% over the same period last year. Among them, 2Q21 achieved a net profit of 3.663 billion yuan, an increase of 1661.1% over the same period last year. The company's performance exceeded expectations, mainly due to a sharp increase in the volume and price of products. Comments: 1) production and sales reached an all-time high, and the rise in price pushed the gross margin per ton of steel to rise sharply. The company's 1H21 achieved steel production and sales of 1363 and 13.52 million tons respectively, an increase of 7.0% and 17.4% respectively over the same period last year, and the company's production and sales reached an all-time high. The price of steel per ton of steel, gross profit per ton of steel and net profit per ton of steel were 4398, 635,383 yuan per ton respectively, up 44.0%, 87.8% and 783.2%, respectively, and the three charges per ton of steel (excluding the effect of accounting caliber adjustment of transport charges) decreased by 10.6% to 103 yuan / ton compared with the same period last year. The volume and profit of the company's steel products have risen, and the profitability has been greatly improved. 2) Financial expenses continue to be optimized. The rate of 1H21 financial expenses decreased by 0.68ppt to 0.44% compared with the same period last year, mainly due to the decrease in interest expenses caused by the decrease in the scale of financing and the increase in superimposed exchange gains. 3) the business cycle is shortened. The business cycle decreased by 15.27 days to 38.63 days compared with the same period last year, of which the inventory turnover days decreased by 12.63 days to 32.17 days, and the accounts receivable turnover days decreased by 2.63 days to 6.47 days compared with the same period last year. 4) the increase of operating cash flow. The cash flow caused by 1H21's business activities reached 8.639 billion yuan, an increase of 80.77% over the same period last year, mainly due to the simultaneous increase in the volume and price of the main products and a substantial increase in cash received from the sale of goods.
Development trend
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. The price of 62% iron ore has fallen to around US $150, and the steel price is stronger than the mineral price. We expect that as the steel demand gradually enters the peak season, the 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. Starting again during the 14th five-year Plan, we are optimistic that the management efficiency of the company will continue to improve. We observed that in the first half of the year, the operation management and cost control of the company continued to be optimized, the turnover of inventory and accounts receivable increased, and the cost per ton of steel decreased. We have observed that Angang Group, the parent company of the company, has realized the merger of Anben, and its proposed 14th five-year Plan of the 7531-year Plan has made steady progress. As the core asset of Angang Group, the company has ushered in new development opportunities. The equity incentive that the company landed in early 2021 is just the beginning. We believe that the company will continue to optimize all aspects of its management and cost control, and its operating efficiency and profitability are expected to improve steadily.
Profit forecast and valuation
Due to the assumption of increasing the price of the company's products, we increase the net profit by 84.7% in 2021 / 2022 to 10.9 billion yuan / 11.8 billion yuan. The current share price corresponds to A-share 21max 22e 4.5max 4.1x Pmax E, while H-share corresponds to 21Universe 22e 4.1max 3.7x Pmax E. To maintain the neutral rating of the company's A / H shares, taking into account the liquidity differences of the company's A / H shares and the strong periodicity of its main business, raise the target price of A shares by 8.5% to 6.15 yuan, and keep the target price of H shares unchanged at HK $6.45 (corresponding to A shares 5.3x/4.9x 21lem22e Pmax E, H shares 4.8x21122e Pmax E) there is 18.5% upside space compared with the current Aacheng H share price.
Risk
The macro economy fell sharply; liquidity contracted more than expected.