Introduction to this report:
The company's production and sales volume declined in Q1 2022 due to equipment maintenance and the impact of the epidemic, and profit margins declined due to rising raw material prices, but we think that as the company's blast furnace resumed production, the epidemic improved, and raw material prices fell, the company's performance would gradually improve.
Key points of investment:
Maintain an “increase in holdings” rating. The company achieved revenue of 45.5 billion and 6.948 billion yuan in 2021, up 44% and 11.88% respectively; it achieved net profit of 1,922 million yuan and 108 million yuan, up 3.27% and 74.03% year-on-year respectively. The performance was in line with expectations. 2022Q1 Taking into account factors such as the sharp rise in raw material prices and the epidemic, the company's EPS forecast for 22-23 was lowered to 0.81/0.83 yuan (originally 0.97/1.06 yuan), the new EPS forecast for 24 years was 0.85 yuan, and the corresponding net profit returned to the mother for 22-24 was 19.55/2,012/2,058 billion. Maintain the company's target price of 5.4 yuan and maintain the “increase in holdings” rating.
The first-quarter results declined somewhat due to short-term adverse factors. 2022Q1's No. 7 blast furnace was overhauled. There was no production throughout the quarter. The company's steel production fell 26% year on year, and the epidemic affected the company's downstream steel demand. Furthermore, the prices of raw materials such as iron ore, coal, and scrap steel rose sharply, putting pressure on the company's profits. Later, with the resumption of production of the company's blast furnaces, the improvement of the epidemic, and the easing of the conflict between supply and demand of raw materials, the company's profit situation will gradually improve.
Adhering to benchmarking and finding the difference, the results of reducing costs and improving efficiency have been remarkable. The company's average daily iron production in '21 jumped from 18,500 tons to the 19,000-ton platform; at the same time, the company's cost rate for the period fell 0.78 percentage points year on year. Among them, sales, management, and financial expenses rates fell 0.27, 0.39, and 0.19 percentage points year on year, respectively. In the future, as the company continues to optimize production processes and enhance cost control capabilities, the company will continue to reduce costs and improve efficiency.
Adhering to the quality strategy, many products have achieved certification breakthroughs. The company's main products include four series of construction materials, medium and heavy plates, industrial wire, and special steel. Among them, low-temperature rebar steel has passed Sinopec certification; HRB600 high-strength steel has completed production license certification; ship boards have been approved by the National Classification Society of 9 factories, bridge panels have passed the first batch of certification by the China Classification Society; and steel plates such as Gaojian steel plate and low alloy steel have passed Singapore FPC certification. As more new certified products are gradually released, they will contribute to the company's increased performance.
Risk warning: Overhauling blast furnaces failed to resume production as planned; downstream demand for steel dropped sharply.