Performance preview
Performance forecast net profit increased by about 256% over the same period last year.
The company issued an annual performance forecast for 2021: the 21-year net profit is expected to be about 7.04 billion yuan, + 255.9% compared with the same period last year; deducting the non-return net profit of 7.02 billion yuan, + 254.9% compared with the same period last year, of which 4Q21 lost about 450 million yuan,-168.8% compared with the same period last year, which is lower than we expected, mainly due to a sharp increase in raw material costs.
Pay attention to the main points
The decline in steel prices superimposed the impact of high-priced raw material inventory, and the company's 4Q performance was under pressure. The decline in 4Q21 real estate and the lower-than-expected demand for steel during the peak season have led to a drop in steel prices. The average spot price of hot-rolled / cold-rolled steel products we track in the 4Q21 industry is-12% and-8%, respectively. On the other hand, the iron ore and coke prices of steel mills in inventory remained at a high level in the fourth quarter as a whole, resulting in a phased decline in the company's steel profits. In addition, in order to consolidate assets, the company has set aside a total of 304 million yuan in asset impairment losses from the two production lines of 580x800, and the company expects to reduce its net profit by 228 million yuan in 2021.
1Q22 performance is expected to pick up and is optimistic that the company's profits will remain high for 22 years. With the improvement of infrastructure investment data in December, we believe that infrastructure capacity is expected to advance in the current stable growth cycle, and steel demand can be expected in the peak season. From the recent high-frequency data, steel supply elasticity is weak, or it is difficult to match the expected rebound in steel demand, 1Q22 steel companies are expected to expand profits. We estimate that the gross profit per ton of rebar steel (considering one-month iron ore inventory) since January is 910 yuan (VS 4Q21 average 440 yuan). Looking forward to the whole year, with the clear signal of "steady growth", we estimate that the demand for construction steel in 2022 is basically the same as the same period last year, and the overall demand for steel is expected to maintain a slight growth without pessimism. In the context of continuous limited production, we believe that the steel supply and demand pattern in 2022 is still tight, the superimposed cost end is likely to decline, and plate profits are expected to remain high. As the iron and steel leader in Northeast China, the company is expected to maintain a good level of profits.
Equity incentives demonstrate confidence in development, and cost reform continues to move forward. The company announced on December 10, 21 that it intends to reserve 5.3662 million restricted shares to 38 incentive targets. We believe that the company's long-term positive incentive mechanism is being gradually established, demonstrating the company's confidence in long-term development, and is expected to fully mobilize the enthusiasm of the core backbone and improve the company's management capacity and production efficiency. At the same time, the company's cost reform is advancing steadily. On December 31, the company announced that it intends to purchase the second power plant of Anshan Iron and Steel Group at a price of 1.126 billion yuan. We believe that this acquisition will help to enhance the company's energy security capacity and reduce the company's production and operating costs. We are still optimistic that the company's medium-and long-term profitability and management efficiency will improve with the deepening of cost reform.
Valuation and suggestion
Considering the forecast decline in the performance of 4Q21, we downgrade the company's 21-year EPS35.5% to 0.75 yuan, 22-year EPS26.4% to 0.75 yuan, and introduce 23eEPS0.83 yuan. The company's current A-share price corresponds to 22/23e4.80x/4.36xP/E and H-share price corresponds to 22/23e4.1x/3.7xP/E. We maintain the neutral rating of the company's A / H shares, and taking into account the company's medium-and long-term profit growth trend, we reduce the target price of A peg H by 10% to 4.56 yuan and HK $4.37. Corresponding to A-share 6.1x/5.5x22e/23eP/E and H-share 4.9x22e 6.1x/5.5x22e/23eP/E, there is 26% upside space for 23e A / H shares.
Risk.
Peak season demand fell short of expectations; property sales and starts fell sharply; infrastructure investment fell short of expectations.