The industry is in the doldrums, and performance has fallen sharply. In the first half of the year, the company's performance fell back due to the epidemic, a sharp decline in demand in the steel industry and the adverse impact of high raw material prices. In the first half of the year, the company produced 5.3655 million tons of steel, down 12.46% from the same period last year; the operating income was 26.641 billion yuan, down 14.29% from the same period last year; and the net profit belonging to shareholders of listed companies was 457 million yuan, down 83.26% from the same period last year. In the second quarter, the company achieved operating income of 13.8 billion yuan, an increase of 7.46% over the previous quarter; the net profit belonging to shareholders of the listed company was-75 million yuan, down 114.17% from the previous quarter; among them, the company recorded an impairment of 224 million of assets because the recoverable amount of inventory was lower than the book value.
Regional leaders will speed up the transformation and upgrading. The company has a deep presence in Fujian market, and its main products include construction materials, product materials, medium and thick plates, high-quality round steel, alloy strip steel and coal chemical products, with an annual steel production capacity of more than 12 million tons. During the reporting period, the construction of Luoyuan Minguang 1250m3 and 1280m3 blast furnace system and 120t converter was completed, and the blast furnace equipment level of the company is expected to be further improved after the project is put into production. At the same time, the company increased technological innovation and product research and development. In the first half of the year, the company invested 682 million yuan in R & D, an increase of 13.91% over the same period last year.
Supply and demand are both weak, and steel mills are expected to improve their profits. In the early stage, in the context of weak demand, market pessimism spread, steel prices fell sharply. Under the pressure of profit, a large number of steel mills arrange maintenance or take the initiative to reduce production, and the black industry chain goes to the warehouse collectively. In the short term, although it is still in the off-season of consumption, the demand for real estate terminal insurance delivery buildings is stable, infrastructure investment continues to develop, the passenger car market has greatly improved, and the demand is expected to improve. With the elimination of inventories, market confidence has been repaired, and if production remains at a reasonable level in the later stage, steel mill profits are expected to further improve. From the perspective of the whole year, the national crude steel production reduction work will continue this year, and the control on the supply side will help the industry to maintain a stable operation and help to restrain iron ore prices. In the pattern of top supply, the profit of the black industry chain is expected to tilt to the end of the steel mill.
Risk tips: demand-side decline in excess of expectations; crude steel production reduction policy landed less than expected; raw material price fluctuations exceeded expectations.
Investment advice: the company as a regional leader, products enjoy market premium, steady dividend. Taking into account the sharp decline in demand for long-term talent, we lowered our performance forecast. It is estimated that the company's 2022-2024 revenue will be 564.7 million yuan (595.1%), with a year-on-year growth rate of-10.0%, 0.7%, and a net profit of 18.9%, 19.6%, 20.4 billion yuan (the original forecast, 32833.7), with a year-on-year growth rate of-52.6%, 3.7%, 4.0%. The diluted EPS is 0.77 plus 0.83 yuan, while the current share price corresponds to 7.1 PE 6.8 against 6.6x, maintaining the "overweight" rating.