The rise in steel volume and price pushed the performance of the second quarter to an all-time high.
Anshan Iron and Steel Co., Ltd. announced 1H21 results on August 27: net profit was 5.183 billion yuan, an increase of 937% over the same period last year, mainly due to the strong price of 2Q21 steel and the 17.4% year-on-year increase in 1H21 steel sales.
The net profit of 2Q21 was 3.664 billion yuan, the highest in one quarter since the listing of Angang shares in 1997, mainly due to the strong supply and demand pattern and market expectations of production reduction, while the steel price was stronger, while 2Q20 was 208 million yuan and 1Q21 was 1.519 billion yuan. Due to strong profits and operating cash flow, the net debt ratio fell further to 3.5%, with a net debt of 2.034 billion yuan. In view of the higher steel price forecast, we have raised our annual net profit forecast for 21-22-23 to RMB 1080.4pm 7.06 billion (previous value:
It raised its target price from HK $5.53 billion to HK $7.7 billion, based on a premium of 0.95 times the 2021 forecast BVPS, a 30 per cent premium over the average since 2016 to reflect higher earnings expectations and strong industry prospects. The predicted EPS of 21-23 is 1.15 kg 0.75 RMB.
Potential regional integration and iron ore support from the parent company
Angang shares issued an announcement on August 20, 2021, Liaoning Province has formally transferred 51% of the shares of Benxi Iron and Steel Group (unlisted) to Anshan Iron and Steel Group (unlisted), the parent company of Anshan Iron and Steel Co., Ltd. We believe that this marks the beginning of regional integration of Angang Group. We believe that Angang, as the listing platform for the steel business of Angang Group, may expand steel production capacity by acquiring the iron and steel assets of the parent company, and greatly enhance its pricing power in North China. In addition, both Anshan Iron and Steel Group and Benxi Iron and Steel Group have rich iron ore reserves and will be developed and expanded during the 14th five-year Plan period, and we believe that Angang shares will benefit from the parent company's support in iron ore supply.
Production cuts will continue to support steel prices in 2H21
The profitability of 2Q21 in China's steel industry fluctuates widely, mainly due to production reduction expectations and the government's intention to cool the price of overheated basic materials. However, the government's determination to cut production in absolute terms in 2021 does not seem to have changed, and some provinces have detailed plans to cut production for the rest of the year. Moreover, the China Iron and Steel Association (CSIA) has repeatedly mentioned over the past few weeks that the production reduction target will remain unchanged. We believe that while 2H21 demand may weaken, production cuts should provide strong support for steel prices so that they can be maintained at a high level.
Risk hint: the implementation of steel production reduction is not as strong as expected; the tightening of real estate leads to lower-than-expected demand.