1H22 performance is in line with our expectations
The company announced 1H22 results: operating income 56.37 billion yuan, year-on-year-0.9%, month-on-month-1.1%; return to the mother net profit of 1.43 billion yuan, year-on-year-69.3%, month-on-month-56.4%, in line with the previous forecast.
1) the production and marketing of long wood is better than that of plate. The steel production and sales volume of 2Q22 Company is 5.52 million tons, respectively, compared with the same period last year, the production and sales of steel products are-1.1%, 2.0% and 10.2%, respectively, of which the plate production and sales are 262.57 million tons, compared with the same period last year, and 6.5% of the same period last year. The production and sales of long wood are 2.98 million tons, which is 10.4% of the same period last year. 2) the price of steel has fallen sharply, and the increase in costs is a drag on profits. We estimate that the price of the company's 2Q22 steel is 4681 yuan per ton, and 115 yuan per ton of steel compared with-681 tons of steel.
The cost of 2Q22 per ton steel is 4843 yuan, and the same / ring ratio is + 100 yuan. The third charge per ton of steel for 2Q22 is 127yuan, and the ratio of the same to the ring-53 is 55 yuan. 2Q the price difference between purchase and sales narrowed and the stacking fee increased, resulting in a decline in the company's gross profit per ton of steel per ton of steel to 438pm 31 yuan respectively, compared with the same period last year. 3) the net cash flow of operation has dropped sharply. The company's 2Q22 operating cash flow net inflow of 1.74 billion yuan,-80.8% year-on-year, mainly due to the large occupation of accounts receivable on cash flow, resulting in operating cash flow pressure (2Q notes and accounts receivable 3.4 billion yuan, year-on-year + 172.2%). 4) provision for impairment of assets in the fall of steel prices. The impairment loss of the company's 2Q22 assets was 810 million yuan, mainly due to a sharp drop in steel prices in June but not a significant rebound in July, and the company was prepared to increase the decline in inventory prices.
Trend of development
The peak season is approaching, and the company's profits in the second half of the year are expected to be repaired. From the perspective of high-frequency data, steel social inventory has been eliminated for 10 consecutive weeks, and the profits of steel mills have been significantly repaired. According to our simulation and calculation, the gross profit per ton of rebar has steadily rebounded to 450 yuan + since August. Looking forward to the peak season, the weakening of the impact of the weather and epidemic situation may lead to the release of rush demand, and we expect that demand will improve marginally, superimpose low inventory or further enable terminal manufacturers to take the initiative to replenish inventory, and bring steel prices and profits to rise synchronously. We are optimistic that the company, as the leading talent in East China, will improve its profits quarter by quarter in the second half of the year.
The construction of the new special steel project is advancing steadily and is expected to become a new profit growth point of the company. The company's "second Entrepreneurship, Transformation and upgrading" strategy has been steadily advanced, with special steel product sales of 760000 tons in the first half of the year, an increase of 3.64% over the same period last year. At the same time, the company has made new breakthroughs in the subdivision areas such as heavy H-beam, high-speed rail wheels and round billets for wind power, and continues to promote the upgrading project group of the southern production line. At present, the new special steel project has entered the equipment installation stage. We are optimistic that in the future, high value-added steel products will gradually become a new profit growth point of the company.
Profit forecast and valuation
Taking into account the increase in raw material costs, we downgrade the 22e/23e EPS16%/11% to 0.39max 0.48RMB, the current 22e/23e7.7x/6.3x H shares correspond to 22e/23e7.7x/6.3x Pmax E and 4.5x/3.7x P Band E. We maintain the industry rating of Ahammer H shares outperforming the industry, taking into account the current volatility in the A share market, reducing the A share price by 23% to HK $4, and the H share liquidity discount by 7% to HK $2.7. The target list price of 22e/23e10.2x/8.4x H shares corresponds to that of 5.9x/4.8x Placer E and Uplink E, respectively, implying 33% of the upstream space of 32%.
Risk
The development of the epidemic exceeded expectations; the real estate boom declined more than expected.