Benefiting from the release of Jingtang production capacity, steel production and sales increased significantly. In 2021, the production capacity of the Jingtang Phase II project of the company was gradually released, and the steel output increased significantly. The annual steel production reached 22.316 million tons, an increase of 23.5% over the same period last year, and the production and sales rate reached 99.9%.

Among them, the company's three strategic products, electrical steel, automobile plate and tinplate, totaled 5.68 million tons, accounting for 26% of the company's steel output; the output of eight key products, such as cold-rolled special steel and hot-rolled pickling plates, was 9.47 million tons, accounting for 42% of the company's steel output. The company plans to relocate steel to produce 8.2 million tons of steel in 2022, while Jingtang produces 14 million tons of steel, which is slightly lower than the same period last year. Among them, electrical steel plans to produce 1.64 million tons, an increase of 9.3%. 2022Q1 Shougang actively adjusted its product structure, producing a total of 1.37 million tons of three strategic products, a decrease of 9.1 percent, but a significant increase in high-end products. High-grade non-oriented electrical steel produced 158000 tons, an increase of 45 percent, and thin specification and high magnetic induction oriented electrical steel produced 16000 tons, an increase of 38 percent.

2021 the income increased significantly, and the data per ton of steel rebounded significantly. The company achieved an operating income of 134.03 billion yuan in 2021, an increase of 67.7%. Among them, the revenue of electrical steel business is 13.31 billion yuan, accounting for 9.9%. 2022Q1 realized revenue of 31.84 billion yuan, an increase of 8.8% and a decrease of 7.6%. Benefiting from the increase in overall steel prices driven by changes in industry supply and demand in 2021, the company adjusted its product structure to increase the output of high-end products, and the company's gross profit per ton of steel and net profit per ton of steel rebounded significantly. In 2021, the company sold 6013 yuan per ton of steel per ton, an increase of 36.4%; a gross profit per ton of steel of 693 yuan per ton, an increase of 82.4%; and the company's overall gross profit margin of 11.53%, an increase of 2.93 percentage points, of which the gross profit margin of the electrical steel business was 12.7%. 2022Q1 due to the decline in industry demand, lower profitability, the company's overall gross profit margin of 8.40%, down 1.85%, 1.09%. In 2022, the company plans to achieve revenue of 121.4 billion yuan, down 9.4%, of which the planned revenue of electrical steel business is 14.5 billion yuan, an increase of 4.5%.

During the period, the expense rate decreased steadily, and the 2021 net profit increased greatly compared with the same period last year. The rate of corporate expenses in 2021 was 3.3%, a drop of 1.5 percentage points. Among them, the sales rate, management rate, financial rate and R & D rate were reduced by 0.05%, 0.35%, 1.03% and 0.11% respectively. As the company's loans are gradually repaid, financial rates are expected to fall further in the future, while the share of R & D expenses is expected to continue to increase under the company's equity incentive plan. Taken together, the company's net profit per ton of steel in 2021 was 374 yuan per ton, an increase of 181.2%. At the same time, with the acquisition of some shares in Jingtang, the proportion of minority shareholders decreased to 15.8%, and the annual net profit was 7.014 billion yuan, an increase of 292.64%. Demand in the 2022Q1 industry is weak, but the company's profit level remains stable, with a net profit of 1.054 billion yuan, an increase of 1.0%, but an annular decrease of 11.5%. Minority shareholders' interests will be further reduced after the acquisition of the remaining stake in Jingtang this year.

The asset-liability ratio declined steadily, and the operating cash flow increased significantly. Thanks to the gradual repayment of loans, the asset-liability ratio has declined steadily, with an asset-liability ratio of 66.59% in 2021, with a drop of 6.4%. 2021Q1 has further dropped to 65.92% and is expected to decline further in the future. The company's income-to-cash ratio in 2021 was 0.583, an increase of 1.1 percentage points, and a cash-to-payment ratio of 0.442, a decrease of 0.7 percentage points. In 2021, the company's net cash flow from operating activities totaled 15.044 billion yuan, an increase of 46.4 percent, mainly due to the increase in profits per ton of steel and the increase in production and sales; the net cash outflow from investment activities was 2.83 billion yuan, basically the same level as in the same period last year. At present, the company is promoting directional additional issuance, has not carried out dividends for the time being, and profit distribution will be arranged after the completion of the implementation of the matter.

Investment advice: the company's 21 annual report is in line with expectations, 22Q1 supply disturbance caused a rise in raw materials, weak demand led to a decline in profits, but the company's performance is flat and resilient. The company continues to adjust the product structure and increase the output of high-end products, and the profit share of these products is expected to further increase in the future. In addition, given the strengthening tone of "steady growth", demand is expected to increase quarter by quarter this year, and the company's performance and earnings are expected to improve. It is estimated that the company's EPS will be 0.98,1.03,1.15 yuan per share in 2022-2024, maintaining the "highly recommended-A" investment rating.

Risk tips: policy and industry risk, low-carbon environmental protection risk, company expansion below expectations, epidemic continuation risk