Introduction to this report:
The company's first quarter of 2022 was slightly lower than expected, and losses from changes in fair value dragged down performance. As an industry leader, the graphite electrode industry will continue to benefit from rising entry barriers, increased concentration, and increased use of combined steel scrap.
Key points of investment:
Maintain an “increase in holdings” rating. The company achieved revenue of 1,149 million yuan in the first quarter of 2022, an increase of 23.5% over the previous year, and achieved net profit of 34 million yuan to the mother, a decrease of 74.82% over the previous year. Changes in fair value dragged down the company's performance. Considering the impact of the epidemic on the company's sales, the company's EPS for 2022-24 was lowered to 0.36/0.44/0.49 (previously 0.47/0.53/0.58 yuan), and the corresponding net profit of 2022-24 to the mother was 1,385/16.61/1.87 billion yuan, respectively. Referring to similar companies, the company was given 30 times the PE valuation in 2022, and the company's target price was lowered to 10.8 yuan (previously 14.4 yuan) to maintain the “increase in holdings” rating.
Profit and loss from changes in fair value dragged down the company's performance, and the price of graphite electrodes remained stable. The company's revenue growth rate remained high in the first quarter of 2022, but net income from changes in fair value was a loss of 145 million yuan, which dragged down the company's net profit to its mother. Looking at the industry, the price of ultra-high power graphite electrodes has been rising steadily since 2022, while in the context of carbon neutrality, demand for graphite electrodes in electric furnace steelmaking will rise steadily, and demand in the graphite electrode industry will gradually rise. The company's production and operation are stable, and after the sales side is free from the impact of the epidemic, the company's performance may gradually increase.
The company's cost transmission is smooth, and graphite electrodes will continue to rise. Raw materials for graphite electrodes rose sharply in 2021. The company relied on its own bargaining power, the cost of effective conduction increased, and the gross profit of tons of products expanded. The production capacity of the company's Hefei base of 50,000 tons is still under construction, and we expect that the company's production will still have room to rise in the future.
Environmental protection and other factors have contributed to an increase in industry concentration. The China Carbon Industry Association issued the “Calculation Method for Carbon Dioxide Emissions from Carbon Product Manufacturing” in 2021, and environmental requirements for the carbon industry are gradually rising.
We expect environmental protection and other factors will gradually push the industry out of backward production capacity, and that the concentration of the carbon industry will further increase. As a leading enterprise in the carbon industry, the company will benefit from increased industry concentration.
Risk warning: Production limits in the steel industry have exceeded expectations.