1H22's performance slightly exceeded our expectations.
The company announced 1H22 results: revenue 71.99 billion yuan, year-on-year-4.0%; return to the mother / deduction of non-return net profit 97pm 690 million, year-on-year-360MB 54.3% 2Q's single-quarter revenue is 40.89 billion yuan, 31.5% of the same quarter, 660 million yuan of net profit, 112.4% of the non-return net profit, and 23.1% of the non-return net profit of 2Q. Due to the late payment of relocation compensation, the profit of superimposed vanadium products has been greatly improved, and the company's performance has slightly exceeded our expectations.
1) the output and profitability of steel products have decreased. The company's 1H22 achieved steel production of 13.1 million tons,-6.0% compared with the same period last year. We estimate (assuming 100% production and sales rate) the price / cost / gross profit of the company's 1H22 per ton of steel at 5229,4745pm 484 yuan, compared with the same period last year. The main reason for the decline in steel production and profitability of 1H22 Company is that raw material prices are overrising due to the conflict between Russia and Ukraine, and the impact of the superimposed epidemic leads to weak downstream demand. 2) with the increase of price and profit, the profitability of vanadium products has been greatly improved. The company's 1H22 achieved an output of 79000 tons of vanadium slag,-12.3% year-on-year, and the gross profit margin of vanadium products was + 2.2ppt to 17.2% of total business gross profit of 1H22 vanadium products compared with the same period last year. + 39.0% to 156 million yuan. 3) during the period, the cost remained stable and the operating cash flow decreased. The expense rate during the 2Q22 period of the company is 7.4%, with the same / ring ratio + 0.2/-1.2ppt, in which the management cost rate is from-0.3/-0.7ppt to 1.8%, and the financial cost rate is from-0.2/-0.9ppt to 3.5%, which remains stable as a whole. Due to the increase in notes and accounts receivable, 1H22's operating cash flow ranged from-40.7 to 5.045 billion yuan compared with the same period last year.
Trend of development
The relocation of withdrawing cities continued to move forward, and the industrial layout was further optimized. Affected by the planning and epidemic situation in Tangshan, as of July this year, the company had received a total of 14.17 billion yuan in compensation for demolition, accounting for 42.4% of the total compensation receivable, and did not complete the compensation for relocation losses as planned (before June 30 of this year). In order to speed up the relocation of withdrawing from the city, the company announced on August 25 that it planned to invest 26.28 billion yuan to build the second phase of 4.05 million tons of Legang project, and announced on the same day that it planned to purchase 4.79 million tons of ironmaking / steelmaking capacity from subsidiaries of Hegang Group at a price of 4.93 billion yuan to meet the target of reduction and replacement of project construction capacity. We believe that the new project is expected to optimize the company's iron and steel product structure and further enhance profitability.
With the peak season approaching, the company's profits are expected to rebound in the second half of the year. Looking forward to the peak season, although the inflection point of real estate construction has not yet arrived, the weakening of the impact of the weather and epidemic may lead to the release of demand for work, which we expect to improve marginally. In addition, we believe that the supporting effect of the inventory cycle on subsequent steel prices may exceed market expectations, with the cooperation of low inventory, the marginal demand in the peak season will improve or further make terminal manufacturers take the initiative to replenish inventory, and bring steel prices and profits to rise synchronously. We are optimistic that the company, as the leader of Hebei Iron and Steel, will improve quarter by quarter in the second half of the year.
Profit forecast and valuation
We keep our profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to 22/23e15.2x/13.0x Pamp E. We maintain the company's neutral rating and target price of 3.1RMB (corresponding to 22max 23e 18.8x/16.2x Pamp E), implying 24% upside space.
Risk.
The development of the epidemic exceeded expectations; the real estate boom declined more than expected.
