Report highlights
Description of the event
*ST Zhongte tracking report.
The incident commented that asset sales combined with government subsidies are expected to reverse losses in 2016: the company's performance has been losing money for 2 consecutive years, and stock trading has also been specially treated as a “delisting risk warning” since May 3, 2016. As of the first three quarters of 2016, the company's performance was still at a loss of $90 million. However, after the company sold assets and received government subsidies, the 2016 results are expected to change the situation and reverse losses. Specifically, the company has received 59.78 million yuan in subsidy funds for shantytown rehabilitation from the Ministry of Finance, and the transfer of part of its shares in Ordnance Equipment Group Finance Co., Ltd. affected profit and loss of 67.3775 million yuan. The industry has also confirmed that part of the revenue has also been confirmed. Thus, the company expects to achieve a profit of 4 million yuan - 10 million yuan in 2016, with a loss of 213 million yuan in the same period last year.
The operating efficiency of the main business needs to be improved: industry demand recovered in 2016, and the performance of special steel companies also bottomed out one after another to achieve profits. Against this backdrop, the company is still constrained by high cost rates, its main business is unable to reverse losses, and ultimately relies on government subsidies and asset sales to reverse its performance. We found that the company's gross margin did not lag behind the industry average, but the company's expense ratio was far above the industry average. As a result, dragged down by expenses, the company's net interest rate also lags far behind the industry average. For example, the gross margins of the company, the steel sector, and the special steel sector in the first three quarters of 2016 were 10.24%, 10.11%, and 9.63%, respectively, indicating that the company's product market competitiveness had a certain advantage, but the cost ratios of the three were 25.22%, 7.94%, and 15.73% respectively, indicating that the company's cost control was poor. In the end, dragged down by the high cost rate, the company's net interest rate was only -13.21%, while the net interest rate for the steel sector during the same period was 1.23%, and the net interest rate for the special steel sector was -7.15%. It can be said that the company's performance is constrained by internal operating efficiency, and transformation or following the trend becomes the way out.
Although planning for important matters has ended, transformation expectations still exist: since the end of 2015, 4 representative companies have successfully transformed, covering fields such as computers, finance, power generation, environmental protection, e-commerce, etc. These fields have characteristics such as good prospects, stable operations, and light assets. The company is also trying to seek transformation based on its own operating conditions. Judging from the relevant announcement, the transformation sector involved the financial industry, but since the transformation conditions were not yet ripe, it was finally terminated. However, the company announcement also stated that “in the future, the company will continue to follow the company's development strategy, actively create favorable conditions to further improve the industrial layout, find new profit growth points, and ensure the company's healthy and sustainable development.” It can be seen that the transformation expectations are still strong.
The company's EPS is expected to be 0.01 yuan and 0.03 yuan respectively in 2016 and 2017, maintaining the “increase in holdings” rating.
Risk warning: 1. Industry demand fluctuated more than expected.