Event Overview: The company released its 2022 annual report: in 2022, the company achieved revenue of 5.32 billion yuan, +14.4% year on year; achieved net profit of 840 million yuan, -22.6% year on year; net profit returned to the mother after deduction was 728 million yuan, -6% year on year. On a quarterly basis, 2022Q4 achieved revenue of 1,396 million yuan, +28.8% year on year and +11.3% month on month; achieved net profit of 373 million yuan, +76.7% year on year, +196.2% month on month; net profit returned to the mother after deduction was 94 million yuan, +15.3% year on year and -56.5% month on month.
Comment: The graphite electrode is under pressure, and the amount of graphite released under isostatic pressure
① Volume: Sales of carbon products increased 3.86% in 2022, and sales of iron powder fell 61.10%. The output of carbon products in '22 was 210,000 tons, +7.06% year on year, of which 165,000 tons of graphite electrodes, -2.54% of the same; 36,000 tons of carbon bricks, +86.53%; other graphite products (isostatic graphite, etc.) were 90,000 tons, +16.88% year on year. In terms of graphite electrodes, the operating rate of domestic electric furnace steel declined in 2022, demand for graphite electrodes was under pressure, and the company's graphite electrode production and sales declined. On the carbon brick side, benefiting from increased blast furnace maintenance, better market demand, and a huge increase in production. In terms of isostatic graphite, production and sales of isostatic graphite have continued to grow, benefiting from the rapid development of photovoltaics and other industries. In terms of iron powder, the price of iron concentrate powder plummeted in the second half of 2022. We judge that the company controlled sales. Sales in 2022 were 124,400 tons, -61.10% year on year. The inventory of iron concentrate powder increased 175,500 tons at the end of the period to 305,600 tons.
② Price: The company's gross margin fell 7.62 pct to 25.88% in 2022. The average price of high-power graphite electrodes in 2022 was +19.69% year on year, but raw materials increased even more, eroding the company's gross profit, and gross margin fell 7.62 pct to 25.88% in 2022. On a quarterly basis, the price of graphite electrodes fell month-on-month in Q4 2022, and there were few takeouts of the company's high-margin iron powder and other products, causing the company's Q4 gross margin to fall 8.27pct month-on-month to 16.58%.
Core future highlights: demand for graphite electrodes is improving, special graphite is released, and the company's performance can be expected to be released ① Demand in the graphite electrode industry improved in '23. The steel industry is expected to recover strongly in '23. Steel prices have risen, the supply of superimposed scrap has clearly eased compared to '22, the capacity utilization rate of electric furnace steel has rebounded, and demand for graphite electrodes has improved.
② Ultra high power graphite electrode projects have been put into operation one after another, and the leading position is more stable. With the 50,000-ton carbon relocation project in Hefei, the 50,000-ton new construction project in Fangda, Meishan was gradually put into operation, and the leading position became more stable. In terms of product structure, the newly launched graphite electrode projects are mainly ultra-high power products, and the proportion of the company's high-end graphite electrode products will increase further in the future.
③ Isostatic graphite was gradually released, and the performance contribution increased steadily. The subsidiary Chengdu Charcoal is a professional R&D and manufacturer of domestically produced hydrostatic graphite products of good quality, large specifications and high output. The total planned production capacity is 30,000 tons. As production capacity is gradually launched, its performance contribution is expected to rise steadily. Chengdu Charcoal achieved net profit of 342 million yuan in '22, +39.28% year on year. Furthermore, Chengdu charcoal was listed on the New Third Board in March 2023, and the valuation will be more fully reflected.
④ With the successful issuance of GDR, the business sector may become even richer. The company successfully issued GDR on the Swiss Stock Exchange in March 2023, raising capital of 190 million US dollars. The funds raised will be used to expand the company's main business and supplement the company's operating capital. The company's business sector is expected to be even richer.
Investment suggestions: The company actively adjusts its product structure, projects under construction gradually release production capacity, and performance release can be expected. We expect the company's net profit attributable to the parent in 2023-2025 to be 1,150/1,485/1,818 billion yuan in that order. Corresponding to current prices, the 2023-2025 PE will be 23/18/14 times in that order, maintaining the company's “recommended” rating.
Risk warning: the project fell short of expectations; the price increase of raw materials exceeded expectations; downstream demand fell short of expectations.