3Q21's performance is in line with our expectations.
The company announced 3Q21 results: revenue 35.986 billion yuan, year-on-year + 35.7%, month-on-month-11.5%; return to the mother net profit of 2.306 billion yuan, corresponding to earnings per share of 0.25yuan, year-on-year + 179.5%, month-on-month-37.0%, the company's performance is in line with expectations.
1) the price increase decreased, and the 3Q revenue decreased slightly compared with the previous month under the background of production pressure drop. Under the background of output pressure drop, steel supply and demand in the third quarter was tight, and steel prices rose steadily. The average 3Q21 price of hot rolled, cold rolled and medium and heavy plates in our tracking industry was 42% compared with the same period last year (month-on-month + 0.15% picks-2.89% picks-0.72%). We believe that the main reason for the company's revenue of-11.5% is that the annual crude steel production target does not increase compared with the same period last year, resulting in a decrease in output compared with the same period last year. (the company produced 13.63 million tons of 1H21, + 7% compared with the same period last year) 2) the sharp rise in coke prices led to a month-on-month decline in gross profit margin. The supply and demand of coke, one of the main raw fuels 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. The sharp rise in coke prices put pressure on the company's third-quarter gross margin, which fell 1.7ppt to 9.8% month-on-month. 3) the operating cash flow remains stable, and the asset-liability structure continues to be optimized. The operating cash flow of 1-3Q21 company was 10.12 billion yuan, + 66.3% compared with the same period last year, mainly due to the rise in steel volume and price in the first three quarters. In addition, at the end of the third quarter, the company's asset-liability ratio was 34.3%, year-on-year-5.2ppt, month-on-month-1.8ppt, and asset quality improved steadily.
Development trend
Promote cost reform and be optimistic about the steady improvement of the company's profitability and management efficiency. According to the company's report results conference, the company has achieved the target of reducing the annual per ton steel cost by 100 yuan ahead of schedule in 1H21. In addition, the company's efforts to optimize logistics expenses and reduce labor costs are carried out according to the plan, and we are optimistic that the company's profitability and management benefits will steadily improve with the deepening of its cost changes.
4Q performance is expected to pick up and is optimistic that the company's profits will remain high in the past 22 years. Up to now, the average gross profit per ton of hot rolling and cold rolling in the fourth quarter of our simulation is 840 million RMB and 1174 yuan respectively, which is about 100 yuan 160 yuan higher than that of 3Q. We believe that the supply and demand of 4Q steel is still tight, and the company's profit is expected to rise month-on-month compared with 3Q. Looking forward to 22 years, we believe that the supply restriction of the iron and steel industry will continue, while the weakening of the terminal downstream demand may put more pressure on the raw material prices, accelerating the peak decline of the iron ore and coking coal cycle, and we still have confidence in the plate profits. it is expected that the gross margin per ton of steel will remain at a good level of more than 500 yuan / ton.
Profit forecast and valuation
The profit forecast for 2021 remained unchanged, as we lowered the 22-year product price assumption and lowered the 22-year net profit by 18.6% to 9.63 billion yuan. The company's current A share price corresponds to 2021/22e3.6x/4.1x PE,H share price corresponding to 2021 3.1x/3.5x PE 22e share price. We maintain the company's A / H share neutral rating, but due to the company's 22-year profit or decline, we lower our target price of 18.7% to 5.0,4.85 Hong Kong dollars (corresponding to A-share 2021amp 22e 4.3x/4.9x PE and H-share 2021lem22e 3.7x/4.2x PE). There is an upside space of 18.5% and 15.8% for each of the A-share and H-share upside.
Risk
Demand during the peak season was lower than expected; property sales and starts fell sharply.