3Q21's performance is in line with our expectations.
The company announced 3Q21 results: revenue 46.716 billion yuan, year-on-year 54.3%, month-on-month 11.2%; return to the mother net profit of 848 million yuan, corresponding to 0.08 yuan per share, 80% year-on-year, month-on-month-18.5%, in line with expectations. Comments:
1) Steel prices have risen steadily, and the company's revenue in a single quarter has reached an all-time high. Under the background of output pressure drop, steel supply and demand is tight, steel prices are rising steadily, the average price of thread and hot rolling 3Q21 is 46% compared with the same period last year (month-on-month + 3.64% Universe 0.15%), and the company's revenue in a single quarter reached an all-time high. 2) the sharp rise in the price of raw material coke leads to a month-on-month decline in gross profit margin. The supply and demand of coke, one of the main raw materials of 3Q21, is tight. The average price of coke we tracked is 3209 yuan / ton, + 42.6% compared with the same period last year, and + 29.6% compared with the previous year. Coke price pressure put pressure on the company's gross margin, which fell 1.3ppt to 8.9% from the second quarter. 3) the ability of cost management and control has been improved, and the expense rate has continued to decline during the period of the company. During the 3Q21 period, the company's expense rate dropped to 6.6%, year-on-year-1.2ppt, month-on-month-0.5ppt, in which the financial expense rate and management expense rate were 3.5%, 1.8%, respectively, year-on-year-0.5ppt/-0.6ppt, month-on-month-0.2ppt/-0.4ppt, and the company's cost management and control ability continued to improve.
Cash flow has risen sharply and operating efficiency has improved steadily. As of 3Q21, the company achieved operating net cash flow of 22.607 billion yuan, 390.66% of the same period last year, mainly due to the sharp increase in the sales price of the company's steel products. At the same time, the inventory turnover and accounts receivable turnover of 3Q21 Company were 5.36 and 4.39 times respectively, which increased 2.25 times and 1.55 times respectively compared with the previous month, and the operating efficiency of the company improved steadily.
Development trend
Fourth-quarter results are expected to remain steady and rising, and it is optimistic that the company's profits will remain high for 22 years. Up to now, the average gross margin of screw thread and hot rolled steel per ton of steel simulated by us in the fourth quarter to date is 886 hectare 840 yuan respectively, which is about 400 hectare 100 yuan higher than that of 3Q. Steel production pressure drop steadily, we believe that 4Q steel supply and demand is still tight, the company's profit is expected to rise compared with the third quarter. Looking forward to 22 years, the core contradiction of iron and steel supply and demand will shift from the contraction of supply to the weakening of demand. In the context of the decline in real estate and manufacturing demand peaking, overall we judge that the growth rate of industry demand has fallen to around 2%, the gap between supply and demand in the industry has narrowed, and steel prices are likely to fall. At the same time, the cycle of iron ore and coking coal at the raw material end peaked with the release of production capacity, and the restriction on the profits of steel enterprises decreased. We still have confidence in the profits of the plate, and the gross profit per ton of steel is expected to remain at a good level around 700 yuan / ton.
Profit forecast and valuation
Leaving the 2021 profit forecast unchanged, we lowered our 2022 net profit by 28.5% to 2.597 billion yuan as we lowered the company's steel product price assumption for 22 years. The company's current share price corresponds to 8.5 times 2021 / 2022 / 10.6 times earnings. Maintain a neutral rating, but as the company's 22-year earnings may decline slightly, we cut our target price by 9.1% to 3.10 yuan corresponding to 10.1 times 2021 price-to-earnings ratio and 12.7 times 2022 price-to-earnings ratio, which has 19.7% upside compared to the current share price.
Risk
Demand during the peak season was lower than expected; property sales and starts fell sharply.
