Introduction to this report:
The company's performance for the third quarter of '22 was slightly lower than expected. As the production capacity of the company's newly built steel pipes is gradually released, its production will continue to grow, and the company's profitability and performance are still expected to pick up again.
Key points of investment:
Maintain an “increase in holdings” rating. The company achieved revenue of 4,536 billion yuan in the first three quarters of '22, a year-on-year decrease of 10.29%; it achieved net profit of 156 million yuan, a year-on-year decrease of 45.62%, and the company's performance fell slightly below expectations. Considering the rise in commodity prices and the impact of the epidemic, the EPS for 22-24 was lowered to 0.37/0.48/0.60 yuan (originally 0.79/0.91/1.00 yuan), and the corresponding net profit for 22-24 was 192/2.5/314 million yuan.
Considering the valuation adjustment of the steel sector, referring to similar companies, the company was given a 22-year PE valuation of 21 times, and the target price was lowered to 7.77 yuan (previously 12.61 yuan) to maintain the “increase in holdings” rating.
The company is a leader in welding steel pipes, and the new production capacity will be gradually released. The company is a leading supplier of welded steel pipes in China and currently has a production capacity of about 1 million tons of welded pipes. The company's “30,000 tons of high-quality thin-walled stainless steel pipe fittings” project entered the full trial production stage in March 22, and production capacity will be gradually released; in addition, the “600,000 tons of high-quality welded pipes and factory-prefabricated deep-processed pipe fittings” project under construction by the company is also being actively promoted. In the future, as the company's new production capacity is gradually released, the scale of production and sales will continue to increase.
The brand strength advantage is remarkable, and it has strong cost transfer ability. The price and cost of the company's tonne steel pipes in 2021 were 6394 and 5618 yuan/ton respectively, up 1196 and 1,178 yuan/ton respectively; the price and cost of the 2022H1 company's tonne steel pipes were 6507 and 5,755 yuan/ton respectively, up 113 and 137 yuan/ton respectively, reflecting that the company has strong brand power and can better transfer the pressure of rising costs and maintain a steady upward trend in its own profits.
Demand for oil and gas pipelines remains high. As crude oil prices remain high and China's energy pipeline network is being built at an accelerated pace, we expect China's oil and gas investment to continue to pick up, and the company's downstream demand will remain high.
Risk warning: The progress of putting new production capacity into operation fell short of expectations, and downstream demand dropped sharply.