The increase in volume, price and profit of general steel products in 2016 led to an increase in overall profitability. In 2016, the company's total operating income was 7.573378 billion yuan, up 12.15 percent over the same period last year; operating profit was 740.603 million yuan, up 179.23 percent over the same period last year; net profit belonging to shareholders of listed companies was 332.589 million yuan, up 96.54 percent over the same period last year; and basic earnings per share was 0.166 yuan, up 95.86 percent over the same period last year. In 2016, the gross profit contribution of General Steel and Special Steel accounted for 72.8% and 24.5% of the total gross profit respectively. The company's overall gross profit margin was 14.1%, up 5.6 percentage points from last year. From the perspective of subdivided products, the gross profit margin of the company's various iron and steel products as a whole is mainly up. In 2016, the company's operating capacity has improved.
Pu Steel: electric arc furnace, converter dual process flexible control cost, hand in hand in regeneration, strategic cooperation between the Chinese Academy of Sciences and Baoxin software to help reduce costs
The company's transformation of electric arc furnace converter dual-process integration of iron and steel manufacturers, with the help of more production processes to build the capacity structure, flexible control of the proportion of raw materials to minimize costs. The company will join hands to expand scrap steel processing and promote raw material cost reduction, strategic cooperation the Chinese Academy of Sciences and Baoxin Software are involved in intelligent manufacturing to lead the wave of human resources cost reduction, and are expected to enjoy the dividends brought by the relevant policies of state support for intelligent manufacturing, and vigorously reduce the company's human resources costs.
Special steel: take advantage of the opportunity to build special steel production capacity, optimize the product portfolio to provide effective supply the company's development strategy is to improve the product mix by increasing the output of high value-added special steel products, and flexibly adjust production decisions according to market conditions and demand. in order to increase sales revenue and improve profit margins. The proportion of special steel revenue in total steel business income has increased significantly from 7.85% in 2010 to 37.85% in 2011. The proportion of steel revenue in 2012-2016 has remained above 29%. The company mentioned in its 2015 annual report that it will increase the proportion of special steel sales with higher gross margins to 60% within three years, so it is expected that the company's production and sales of special steel products will further increase in the future.
The company attaches great importance to special steel product research and development and production process upgrading. According to the announcement and the official website, in recent years, the company has cooperated with Luoyang bearing Research Institute, Metal Institute of the Chinese Academy of Sciences, Baoxin Software and other units to build a bearing steel research center, high-end special steel deep processing production line and other projects. On the one hand, the company's product structure will continue to upgrade, on the other hand, the company's overall production efficiency and management efficiency will also continue to improve. In the future, the company's special steel products are expected to usher in a blue sea of demand.
Profit forecast and investment suggestions: arc furnace and converter dual system integration, improve quality and reduce cost to build high-end special steel manufacturers, give "buy" rating
Taking advantage of the capacity structure built by multiple production processes, the company can flexibly control the proportion of raw materials to minimize costs, which can effectively avoid the "non-systemic risk" caused by the rising prices of some raw materials under the background of rising raw material prices. Not only that, Xiwang Group and China Recycling Joint Venture to create a leader in the scrap steel processing industry to promote raw material cost reduction, the company reached a strategic cooperation with the Chinese Academy of Sciences and Baoxin Software to enter the field of intelligent manufacturing to promote human resources cost reduction, the company's cost reduction and efficiency action is based on the forefront of the industry. The company improves the product mix by increasing the output of high value-added special steel products, and flexibly adjusts production decisions according to the market situation and demand. It is expected that the production and sales of special steel products will further increase in the future. The company attaches great importance to the research and development of special steel products and the upgrading of production process. In recent years, it has worked with many parties to create high-end projects to promote the transformation and upgrading of the company's product structure. In the future, automotive, infrastructure, high-speed rail and other industries have broad prospects for development, and the company's special steel products are expected to usher in a blue sea of demand. The estimated EPS for 2017-2019 is 0.23,0.30,0.35, corresponding to the closing price of H shares on April 3, 2017 (HK $1.04, exchange rate 0.88779 (March 31, 2017).
From 2017 to 2019, the PE is 3.94X, 3.13X and 2.68X, corresponding to the latest PB is only 0.38X, it is recommended to pay attention to.
Risk hints: the risk of H-share market style is different from that of A-share market; the risk of macroeconomic sharp decline; the high dependence of raw material suppliers and the risk of substantial price increase; the process of market expansion is not as expected; the matching degree of product portfolio and market demand is lower than expected; exchange rate risk.