The company achieved sales revenue of 673 million yuan in the first quarter, an increase of 20% over the same period last year, but due to high manufacturing costs and rising steel prices at the beginning of the new production line, gross profit fell sharply to 9%, resulting in a 33% drop in net profit.
The company forecasts a decline of 5-38% in first-half profit, and we expect first-half net profit to fall by about 20-30%, maintaining a "neutral-B" investment rating.
The decline in gross profit margin led to a lower-than-expected net profit. As the 180mm project started production and consolidation in the first half of the year, the low capacity utilization at the initial stage of production led to high manufacturing costs, while the product price adjustment lagged behind in the case of a sharp rise in steel in the first quarter, and the delivery of some low-cost orders last year led to a sharp drop in the company's gross profit margin by 6 percentage points to 9% compared with the same period last year, and net profit decreased by 33% as the company's revenue increased.
The performance in the first half of the year is greatly affected, and there may be a big improvement from the third quarter. The company has started to adjust the price of its products, but due to the schedule, it is not expected to have a positive impact on gross profit margin until the third quarter. In addition, the company produced 108000 tons of oil casing in the first quarter, of which 44000 tons were produced by the 180 project, and the output and quality met the design requirements. The company expects that the investment project will gradually reach the normal operation level in the second half of the year, and the increase in utilization will significantly reduce the manufacturing cost.
The increase in accounts received in advance shows that the current order is sufficient. The company's accounts received in advance at the end of the first quarter more than doubled from the beginning of the year, mainly because higher oil prices have led to renewed global production activity, while increased difficulty in drilling has also led to an increase in casing consumption. The company is currently in the hands of sufficient orders, production has been scheduled to August. The company's prepaid accounts have been greatly reduced by 65%. In the case of large fluctuations in steel prices, upstream steel mills are unwilling to accept advance deposits to lock in prices, and the company's future raw material costs will still face the impact of steel price fluctuations, but if steel prices fall, it will also help the company's gross profit margin to rise.
All expenses have been better controlled. After the A-share listing of the company, the financial expenses have been reduced by more than 50%, and the management expenses and operating expenses rate have been maintained at a low level, indicating the company's excellent cost control ability.
Maintain the "neutral-B" investment rating: out of concern about the rise in raw material prices, we downgraded the rating in the machinery industry in February 2011, but the impact of the rise in raw material prices on the company's performance still exceeded our expectations. we believe that the main reason is that the downstream is too strong and competition leads to the lack of sufficient pricing power, and the performance is more sensitive to raw material cost fluctuations. It is expected that the company's performance in the first half of the year will decline by about 20-30% compared with the same period last year, and the 11-and 12-year performance forecasts will be adjusted to 0.70 and 0.92 yuan, maintaining a neutral rating.
Risk hint: the progress of the fund-raising project is lower than expected, and the price of raw materials has risen sharply.
