Introduction to this report:
Affected by adverse factors such as the epidemic, the company's 202H1 performance was slightly lower than expected. The company insists on reducing costs and increasing efficiency and optimizing the product structure. As its newly built high-end electrical steel production capacity is gradually released, its profitability is expected to gradually increase.
Key points of investment:
Maintain the increase in holdings rating. 2022H1 achieved revenue and net profit of RMB 638 and RMB 1,761 million respectively, up 0.72% and 49% respectively over the previous year. The performance was slightly lower than expected. Considering that demand for the first half of the year fell short of expectations, its EPS forecast for 22-24 was lowered to 0.56/0.63/0.69 yuan (originally 1.04/1.10/1.15 yuan). Considering the sector valuation adjustments brought about by weak demand in the first half of the year, the target price was lowered to 5.60 yuan (originally 7.98 yuan) by similar companies to evaluate PE 10 times in '22, and maintain the “increase in holdings” rating.
The product structure is rapidly optimized, and profitability is expected to increase. The proportion of the company's high-end electrical steel in 19-21 was 34%, 40%, and 48% respectively. 2022H1's electrical steel production was 717,000 tons, down 10% from the previous year, while the production of targeted and unoriented high-grade grades was 97,000 and 350,000 tons respectively, up 3.4% and 44.2%, respectively; the share of high-end electrical steel rose further to 62%, and the product structure was rapidly optimized. With the gradual implementation of high-end production capacity under construction, the company's product structure will continue to be optimized, which is conducive to improving its profitability.
Electrical steel production capacity continues to expand, and the share of high-end products will continue to increase. At the end of June '22, the company's newly built electrical steel production line for new energy vehicles was successfully tested. The company added 350,000 tons/year of high-grade unoriented electrical steel production capacity; it is expected that in 2023Q1, the company will also add 90,000 tons/year of ultra-thin high-magnetic induction electric steel production capacity. It is estimated that by 2025, the proportion of the company's high-end electrical steel will rise to more than 70%. With the gradual release of new high-end production capacity, the electrical steel business will contribute more performance growth to the company.
Investment in R&D has been increased, and technical strength has been highlighted. 2022H1 invested 3.651 billion yuan in R&D, a year-on-year increase of 72.61%, mainly to increase R&D efforts for new products and processes. Based on intensive R&D investment, 2022H1 obtained 305 patents, which is 68% of the number of patents granted for the full year of '21. Moreover, new breakthroughs have been achieved in many products such as automotive boards and energy boards, demonstrating strong technological innovation capabilities.
Risk warning: Downstream demand has been drastically reduced, and the release of new electrical steel production capacity fell short of expectations.