Event Overview: On October 30, the company released its report for the third quarter of 2022: in the first three quarters of 2022, the company achieved revenue of 3,925 million yuan, an increase of 10% over the previous year; net profit of 467 million yuan, a year-on-year decrease of 46.6%; net non-attributable profit of 634 million yuan, a year-on-year decrease of 8.5%. At 2022Q3, the company achieved revenue of 1,254 million yuan, a year-on-year increase of 4.1% and a year-on-year decrease of 17.6%; net profit of 126 million yuan, a year-on-year decrease of 66.1% and a decrease of 59% month-on-month; net profit of non-attributable net profit of 216 million yuan, a year-on-year decrease of 8.1% and a decrease of 26.3% over the previous year. Performance fell short of expectations.
Comment: Changes in fair value and losses drag down performance
① Volume: Graphite electrode sales are expected to decline. The boom in the domestic steel industry declined in the third quarter. Electric furnace steel losses and production were reduced. The Q3 electric furnace operating rate was 53.79%, down 1,383 pct from month to month, compounded by the impact of the epidemic in some regions (Q3 contract debt was 316 million yuan, +162 million yuan, +49 million yuan over the previous year). The company's graphite electrode shipments are expected to decline in the third quarter.
② Price: Product prices fell month-on-month. Q3 The price of graphite electrodes (high power) was -0.54% month-on-month, and the price of iron powder was -22.79% month-on-month. In terms of raw materials, needle coke prices in the third quarter were -0.60% month-on-month, petroleum coke prices -7.02% month-on-month, and coal asphalt prices +4.65% month-on-month. The company's Q3 gross margin fell 9.14 pct month-on-month to 24.86%.
③ Three fees: Q3 fees fell 50 million yuan month-on-month and $30 million year-on-year. Among them, sales expenses fell by 112 million yuan month-on-month, management expenses fell by 023 million yuan, financial expenses fell by 115 million yuan month-on-month, and the company's operating efficiency increased.
④ Changes in fair value: Q3 The company's fair value change loss was 88 million yuan, a year-on-year decrease of 128 million yuan, a year-on-year decrease of 139 million yuan. The stock market was weak in the third quarter, and the fair value of the company's tradable financial assets is expected to decline.
Future core focus: carbon projects continue to advance
① Ultra high power graphite electrode projects have been put into operation one after another, and the leading position has become more stable. With the 50,000-ton carbon relocation project in Hefei, the 50,000-ton new construction project of Meishan Fangda was gradually put into operation, and its leading position became more stable. In terms of product structure, the newly put into production graphite electrode projects are mainly ultra-high power products. In the future, the proportion of the company's high-end graphite electrode products will further increase.
② Isostatic graphite is gradually released, and the performance contribution is expected to increase steadily. A subsidiary, Chengdu Carbon Steel, is a professional R&D and manufacturer of domestically produced isostatic graphite products with good quality, large specifications, and high output. The company currently has a production capacity of 60,000 tons of isostatic graphite and a total planned production capacity of 30,000 tons. With the gradual launch of production capacity in the later stages, the performance contribution is expected to increase steadily.
③ It is planned to issue GDR, and the business sector may become even richer. The company plans to issue a GDR (no more than 15% of the company's total common share capital before issuance) on the Swiss Stock Exchange to raise funds to expand the company's main business and supplement the company's operating capital. The company's business sector is expected to become even richer.
Investment suggestions: The company is actively adjusting the product structure, multiple projects under construction are gradually releasing production capacity, and performance release can be expected. We expect the company's net profit to be 682/11.93/1,712 million yuan in the order of 2022-2024, corresponding to the current price. PE in 2022-2024 will be 34/19/14 times in that order, maintaining the company's “recommended” rating.
Risk warning: The development of electric furnace steelmaking falls short of expectations; project progress falls short of expectations; raw material prices fluctuate greatly.