Incidents:
Ordos released its report for the first quarter of 2022: the first quarter of 2022 achieved operating income of 9.56 billion yuan, an increase of 41.5% over the previous year; net profit attributable to shareholders of listed companies was 1.34 billion yuan, an increase of 94.5% over the previous year.
Commentary:
Q1 profit reached a record high for the same period: net profit returned to the mother in the first quarter of 2022 reached 1.34 billion yuan, an increase of 94.5% over the previous year. Both revenue and net profit reached record high results for the same period.
The price of ferrosilicon continues to rise, and Q2 may be better: As an important source of profit for the company, ferrosilicon has high price elasticity. By the end of April 2022, ferrosilicon futures prices had recovered to around 10,000 yuan/ton, up 26% from the beginning of the year, and at the same time accompanied a sharp decline in inventories. At the end of April 2022, social inventories of ferrosilicon fell 50% year-on-year. We believe that behind this was the rapid improvement in industry supply and demand: 1) The Russian-Ukrainian conflict led to a gap in global ferrosilicon supply and demand over the past month, which in turn drove China's ferrosilicon exports grew by more than 100% in January-January; 2) Demand side steel mill production gradually resumed production, based on the flat control of steel production throughout the year, and ferrosilicon production returned to 500,000 tons per month Faced with the above bottlenecks, we judge that the gap between supply and demand will still be obvious or even widened further, that ferrosilicon prices will further strengthen, and the company's Q2 performance is expected to fully benefit from the high performance elasticity brought about by the increase in ferrosilicon prices.
Resource attributes may be overlooked: the company can supply its own coal to guarantee profitability. The company added 25% of Yongmei Mining Company's shares in 2021. The company controls a total coal equity production capacity of nearly 11 million tons, which can basically achieve its own coal supply. If coal prices remain high, the company's profitability will be fully guaranteed.
Capacity replacement improves efficiency. The company plans to use its own capital to invest 2,500 million yuan and 450 million yuan respectively in the construction of an innovative ferrosilicon alloy project and the Tongyuan chemical calcium carbide project; the annual production capacity of the ferrosilicon furnace after this replacement is 4612,000 tons, and the annual production capacity of the sealed calcium carbide furnace is 232,200 tons. The above two projects are expected to be completed and put into operation by the end of 2023. We believe the above two projects will effectively improve the company's production efficiency.
Strong performance, high dividends, high quality blue chips: The company's net profit increased dramatically in 2021. It has achieved continuous growth from 2016-2021, with a CAGR of up to 70% in 6 years; it is also a rare enterprise in the industry that continues to grow month-on-month in 2021Q4. The company's dividend ratio in 2021 was as high as 47%, and the dividend rate was as high as 7%.
The company has paid dividends every year since listing, with an average dividend ratio of over 20%.
Profit forecast and investment rating: We forecast the company's revenue for 2022-2024 to be 450/490/46 billion yuan, with a year-on-year growth rate of 23%/9%/-6%; based on the company's performance, we adjusted the net profit attributable to the mother in 2022-2024 from 90/100/9.5 billion yuan to 85/90/92 billion yuan, with a year-on-year growth rate of 40%/6%/3%; corresponding PE is 55/ 5.2/5.1x respectively. Considering that the company's performance is expected to continue to improve and have resource attributes, valuations are low and dividends are low, and the company's “buy” rating is maintained.
Risk warning: The price of ferrosilicon fluctuates, and the cost fluctuates.
