Key points of investment:
Maintain an “increase in holdings” rating. In the first three quarters of 2021, the company achieved operating income of 3,568 million yuan, an increase of 37.23% over the previous year, and achieved net profit of 873 million yuan, an increase of 118.13% over the previous year; in the third quarter, the company achieved net profit of 371 million yuan, an increase of 83.85% over the previous year. The company's performance was in line with expectations.
Considering the impact of power limits on downstream electric furnace steelmaking demand for graphite electrodes, the company's 2021-2023 EPS was lowered to 0.32/0.47/0.53 yuan (originally 0.36/0.54/0.65 yuan), maintaining the company's target price of 14.4 yuan and maintaining the “increase in holdings” rating.
The price of graphite electrodes is rising steadily, and the impact of the power limit is relatively manageable. Profits in the steel industry rose in '21, demand for graphite electrodes from electric arc furnaces picked up, and prices rose steadily: as of the end of October 22, the price of 550mm ultra-high power graphite electrodes was 22,900 yuan/ton, which was about 7,000 yuan/ton higher than the same period in '20. The power limit has put some pressure on electric furnace production, but the overall situation is manageable. We believe that in the context of good profits in the steel industry, graphite electrode prices will remain strong, and the company will fully benefit from rising prices.
The concentration of the graphite electrode industry may gradually increase. The concentration of the graphite electrode industry in China is low. In the context of strict control of high-energy consumption projects, we believe that the new production capacity of the graphite electrode industry will be limited. In the future, the industry will enter a period of integration, and the concentration of the industry will gradually increase. As an industry leader, the company has the lowest cost. It will achieve growth through industry integration. The company's growth may exceed expectations.
Actively embrace 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: Tighter electricity limits make demand for graphite electrodes fall short of expectations