Guide to this report:
The company's performance for the first three quarters of '22 fell short of expectations. The company's production capacity continues to expand. With the gradual release of new production capacity, the company's production and marketing scale will continue to expand. After the fundamentals of the industry improve in the later stages, the company's performance is expected to improve significantly.
Investment points:
Maintain the “increase in holdings” rating. In the first three quarters of '22, the company achieved revenue of 62.361 billion yuan, a year-on-year decrease of 4.91%; net profit of Gimu was 2,591 billion yuan, a year-on-year decrease of 212.96%, and performance was lower than expected. Considering the pressure on both sides of the company's revenue and costs, the company's EPS forecast for 2022-24 was lowered to -1.01/0.20/0.50 yuan (originally 0.59/0.61/0.64 yuan), corresponding to net profit of -2,590/5.20/1,292 billion yuan, respectively. Considering sector valuation adjustments, refer to similar companies that gave the company 1.1 times PB in '22 for valuation, lowered the target price to 4.29 yuan (originally 5.66 yuan), and maintain the “increase in holdings” rating.
Short-term performance is under pressure, and it is expected that it will gradually recover in the later stages. Overall demand has been weak since '22, and steel prices have fluctuated and declined; although there has been a decline after a sharp rise in raw material prices, the overall price drop is lower than the decline in raw material prices, continuously squeezing the company's profit margin. At the end of the 1-3 quarter of '22, the company's gross margin was 1.18%, 0.71%, and -2.33% respectively. The company's gross profit continued to decline, and short-term performance was under pressure. However, we believe that in the context of steady growth, demand for steel is still resilient, and the company's profit is expected to gradually recover.
New production capacity is gradually being released, and the scale of production and marketing continues to expand. Currently, the ironmaking and steel production capacity of the company's Liugang headquarters is 1017 and 12.5 million tons, respectively; the subsidiary Guangxi Steel Ironmaking and Steel have production capacity of 608 and 6.3 million tons respectively. In addition, Guangxi Steel still has a production capacity of 2.1 million tons under construction. As the company's new production capacity is gradually released, the company's production and sales scale will continue to expand.
Adhere to the green development path and enhance the advantages of sustainable development. In '21, the new water consumption for the company's Liugang headquarters and Guangxi Iron and Steel was 1.62 and 2.65 m3/t respectively; in the first half of '22, the new water consumption for tons of steel for Liugang headquarters and Guangxi Iron and Steel dropped further to 1.01 and 2.42 m3/t respectively, ranking at the advanced level of similar enterprises. We believe that in a carbon-neutral context, the company's green development strategy is conducive to enhancing the company's competitiveness.
Risk warning: The release of new production capacity fell short of expectations; downstream demand dropped sharply.