Event: according to the company's 2021 annual report, the company achieved an operating income of 113.851 billion yuan in 2021, an increase of 39.50% over the same period last year; the net profit belonging to the shareholders of the parent company was 5.332 billion yuan, an increase of 168.95% over the same period last year. Basic earnings per share was 0.692 yuan, an increase of 168.22% over the same period last year. The company's fourth-quarter operating income was 28.035 billion yuan, an increase of 19.8% over the same period last year, and its net profit was-1.195 billion yuan, turning into a loss.

The company's 21-year revenue and net profit increase benefited from the domestic iron and steel production restriction policy, the better industry demand in the first half of the year and the improvement of its own operating efficiency. The overall price of iron and steel is higher, and the price of the company's main products has increased. In 21 years, the prices of long wood, plate and axle tons of the company were 4580 yuan, 5156 yuan and 10250 yuan respectively, an increase of 39%, 34% and 3% over the same period of 20 years. In terms of profit, the gross profit margins of long wood, plate and axle are 8.7%, 16.6% and 15.6% respectively, of which the gross profit margin of plate is 7.4% higher than that of 20 years, and plate sales account for half of Prida's total sales, which is the largest increment at the profit end. The fourth-quarter loss is related to the deterioration of the overall fundamentals of the Q4 industry. The overall gross profit margin of the Q4 industry has declined and inventory impairment has been recorded due to the price drop.

21-year gross profit rise: the company is the leader of Anhui regional steel products, rich in product categories, accounting for half of the proportion of long plate, with a total steel production capacity of 20.5 million tons in 21 years, which is the best level in the company's history. With its geographical advantages close to Hefei and Nanjing, the company radiates areas with high steel demand, such as Jiangsu, Zhejiang and Shanghai, and accounts for more than 80% of its revenue in the above areas. According to statistics, the premium rate of hot rolling and thread in the region is 8%, 10% higher than that in other parts of the country. The gross profit per ton of the company has improved significantly in the past 21 years. The gross profit margin of cold-rolled and hot-rolled products has increased by 12% and 1.2% respectively over the same period last year, and the gross profit per ton of steel of cold-rolled and hot-rolled products has increased by 760 yuan and 175 yuan respectively compared with the same period last year. On the cost side, the prices of iron ore, coke and other raw materials were high in 21 years. The average import price of iron ore rose by 49.3% in the whole year, and the company's production costs increased by 33% in the same period.

The production and operation efficiency of the company continues to improve. The parent company Maanshan Iron and Steel Group was reorganized into a subsidiary of Baowu Group in 19 years, and the company was merged into Baowu system. In 21 years, the steel output was 20.45 million tons, and the utilization rate of steel production capacity was 99.76%. Under the premise that crude steel production did not increase, steel output increased by 2.97% compared with the same period last year. The cost side decreased again, accounting for 2.04% of revenue in 21, down 1.7% from the same period last year, and 3. 5% lower than before joining Baowu Group in 19.

2%. The rate of management expenses decreased significantly, from 3.04% in 19 years to 1.22% in 21 years. Per capita steel output has increased significantly, with crude steel output per capita reaching 1120 tons in 21 years, an increase of 18% over the same period last year. The company makes efforts on high-end products and continues to carry out the strategic reform of "Youzhute". In terms of R & D expenditure, the company's 21-year R & D expenditure rate is 4%, the highest in nearly a decade. At the same time, the company added high-end production capacity. In December 21, the company started a 3.2 million-ton new special steel project to replace the traditional 3.7 million-ton production capacity. The first phase is scheduled to be put into production in June 23, and the second phase is scheduled to be put into production by the end of the 24th. The products are alloy steel, bearing steel, gear steel and other high-end automotive steel.

Investment suggestion: Maanshan Iron and Steel Co., Ltd. is a leading steel enterprise in Anhui Province, enjoying the premium of products in the downstream market based on its geographical location. The operating efficiency has improved in the past 21 years, and the level of expenses and gross profit has increased significantly. It is expected that the business level of the company will continue to improve steadily.

We believe that downstream steel demand is expected to be stronger than 21 years, judging that the upward space of steel prices this year is limited, while the maintenance of high raw material prices makes it difficult for industry profits to return to 21-year highs. According to the 22-year forecast of steel prices, we estimate that the company's net profit from 2022 to 2024 will be 4.571 billion yuan (11% higher than the previous forecast of 4.113 billion yuan), 49.77 yuan and 5.478 billion yuan respectively, year-on-year-14%, + 9% and + 10%. The corresponding EPS is 0.59,0.63,0.71 yuan, respectively, and the PE from 2022 to 2024 is 6.7pm 6.1pm 5.6 times, maintaining the "holding increase" rating.

Risk reminder event: the actual demand is lower than expected, the pressure on the supply side continues to increase, and the price of raw materials increases significantly.