Guide to this report:
The company's performance in Q1 2021 and 2022 was slightly lower than expected, mainly due to rising costs and expenses. We believe that as the epidemic gradually improves, and the company promotes cost reduction and efficiency, and the release of new production capacity accelerates, the company's performance is expected to gradually improve.
Investment points:
Maintain the “increase in holdings” rating. The company achieved revenue of 92.3 and 23 billion yuan in 2021 and 23 billion yuan, up 69% and 30%, respectively; net profit of 1,456 million yuan and - 512 million yuan, down 15.28% and 177.12% year-on-year respectively, and performance was slightly lower than expected. 2022Q1 Taking into account factors such as rising raw material prices and Guangxi Steel's capital investment period, the 22-23 EPS forecast was lowered by 0.59/0.61 yuan (originally 1.28/1.3 yuan), and the 24-year EPS forecast was increased by 0.64 yuan. Considering sector valuation adjustments brought about by rising raw material prices, refer to similar companies that gave 10 times PE valuation in '22, lowered the target price to 5.9 yuan (originally 7.44 yuan), and maintain the “increase in holdings” rating.
Costs and expenses are rising, affecting the company's performance. At the end of '20, the company completed a capital increase and holding of Guangxi Steel. Since '21, Guangxi Steel has been in the capital investment and new product reserve period. In '21, the company's financial, management, and R&D expenses surged 564%, 81%, and 20%, respectively, year-on-year, which is the main reason for the decline in the company's performance. Furthermore, in the context of the epidemic, factors such as rising logistics costs and rising raw material prices have further squeezed the company's profit margin. As the epidemic improves and costs are reduced, the company's performance will gradually improve.
Newly built production capacity will gradually be released, and production will gradually rise. At the end of November '21, the No. 2 blast furnace at the Guangxi Steel Steel Anti-Steel Base was officially put into operation. Guangxi Steel's ironmaking and steel production capacity reached 608 to 6.3 million tons/year, respectively, and another 2.1 million tons of steelmaking under construction per year. In '21, the company produced 19.29 million tons of steel, an increase of 26% over the previous year.
Beginning in '22, the company's output will increase significantly as new production capacity at the anti-steel base is released at an accelerated pace.
Adhering to green development is conducive to enhancing the company's competitiveness. In '21, the company's Liugang headquarters and Guangxi Steel's new water consumption per ton of steel were 1.62 and 2.65 m3/t respectively; in addition, the company used waste heat, waste pressure, and surplus gas to generate electricity, and the self-generation ratio reached 81.15%, all at the advanced level of similar enterprises. We believe that in the context of carbon neutrality, the company's green development strategy is conducive to enhancing the company's competitiveness.
Risk warning: Construction of anti-steel base projects has been delayed; downstream demand has dropped sharply.