Incident: The company released its report for the first quarter of 2022, achieving revenue of 1,149 million yuan, an increase of 23.50% over the previous year, net profit of 34 million yuan, a year-on-year decrease of 74.81%, net profit of 125 million yuan after deduction of net profit of 125 million yuan, a decrease of 9.13% over the previous year.
In 2022 Q1, the company's gross profit was +14% compared to the same period last year, and the decrease in fair value led to a sharp drop in net profit attributable to the parent. 2022Q1's revenue was 1,149 million yuan, +23.50% year on year, operating cost was 832 million yuan, +27.77% year on year, and gross profit was 317 million yuan, +13.52% year on year. The net profit attributable to the 20221Q1 company was -74.81% year-on-year, mainly due to a decrease of 117 million yuan in the fair value of transactional financial assets, derivative financial assets, transactional financial liabilities, and derivative financial liabilities held by the company, resulting in Q1 non-recurring profit and loss of -90.98 million yuan.
The supply and demand for graphite electrodes were weak in Q1 2022, and industry profits improved sharply on a month-on-month basis. According to Baichuan Yingfu data, China's graphite electrode production in January-March was 22,500 tons, -7.33% year on year, -6.94% month on month; the average operating rate of 85 electric furnace steels monitored by Mysteel for the month to month was 44.19%, -15.38 percentage points year on year, indicating that supply and demand in the graphite electrode industry were weak in the first quarter. According to Baichuan Yingfu data, the average price of 2022Q1 graphite electrodes was 21,158 yuan/ton, +5.1% month-on-month, and the gross profit of the industry was -1,538 yuan/ton, +511 yuan/ton compared to the previous quarter.
Since the second quarter, electric furnace construction has continued to rise, and graphite electrode prices are expected to rise further. According to Baichuan Yingfu's data, the average cost of graphite electrodes in April was 28,173 yuan/ton, a change of +10.60% from the Q1 average; the average price of graphite electrodes was 23,704 yuan/ton, a change of +12.04% from the Q1 average. As of April 29, the operating rate of 85 appliances monitored by Mysteel rose to 72.54%, up 4.13 pct from the end of March. The second quarter is the traditional peak season for steel demand. The recovery in the operating rate of electric furnaces will boost demand for graphite electrodes. It is expected that prices and profitability will rise further.
The company's three expense rates fell to 7.19%, a new low in a year. The 2022Q1 company's three expense ratios (sales, management, finance) were 7.19% (-7.47pct month-on-month), a new low within a year. Among them, the sales expense ratio was 2.89% (-0.48pct month-on-month), the management expense ratio was 9.41% (-5.61 pct month-on-month), and the financial expense ratio fell to a new low of -5.11% (-1.38pct month-on-month).
Profit forecasting, valuation and rating: As a leading enterprise in the graphite electrode industry, the company also has a new carbon materials business, providing new momentum for future development. It maintains the company's net profit forecast for 2022-2024 of 17.80, 26.06 and 3.385 billion yuan respectively. The corresponding EPS is 0.47, 0.68, and 0.89 yuan respectively. The price of graphite electrodes continues to rise, and the company's profit is expected to continue to rise, maintaining the “buy” rating.
Risk warning: The development space of the photovoltaic industry and nuclear power industry fell short of expectations; profitability declined due to overcapacity in the graphite electrode industry, carbon-carbon composites and other products; Fangda Group issued convertible bonds targeting company shares, which may affect the company's stock price on a large scale in the future.