Maintain an “increase in holdings” rating. The company announced that its net profit for the first three quarters of 2021 was 82-90 million yuan, an increase of 104.79%-124.77% over the previous year. The company achieved net profit of 38-398 million yuan in the third quarter, an increase of 57.4%-97.03% over the previous year. The company's performance was in line with expectations. Maintain the company's 2021-2023 EPS forecast of 0.36/0.54/0.65 yuan, maintain the company's target price of 14.4 yuan, and maintain the “increase in holdings” rating.
Downstream demand is good, and graphite electrode prices are picking up steadily. The contraction in supply in the steel industry in '21 led to an increase in profits for electric arc furnaces. The operating rate of electric arc furnaces increased, and demand for graphite electrodes gradually picked up. Since November 2020, the price of graphite electrodes has been rising steadily. At the end of September, the price of 550mm ultra-high power graphite electrodes was 21,400 yuan/ton, which is about 6,600 yuan/ton higher than the same period in 2020. We believe that in the context of rising profits in the steel industry, demand for graphite electrodes is good, and prices will remain strong. The company is the leader in graphite electrodes and will fully benefit from the rise in graphite electrode prices.
Production capacity expansion is limited, and the concentration of the graphite electrode industry may gradually increase. There are many manufacturers in the graphite electrode industry, and the concentration of the industry is low. In the context of the country's strict control of high energy consumption projects, the new production capacity of the graphite electrode industry is limited. In the future, the industry will enter a stage of integration, and the concentration of the industry will gradually increase. As an industry leader, the company will achieve growth through industry integration, and the company's growth may exceed expectations.
The industry has reached an inflection point in fundamentals and is actively embracing the leader in the graphite electrode industry. The company produces its own needle-shaped coke, and the cost advantage is obvious. We believe that with the increase in downstream demand, the company's performance is more elastic, and it is expected that “Davis double click” will be welcomed. In the medium to long term, with the steady development of electric furnace steel in China, demand for graphite electrodes will continue to rise, and the industry has broad scope for development.
Risk warning: Demand for graphite electrodes fell short of expectations.