This report is read as follows:
The company's performance in the fourth quarter of 2018 was lower than expected, the gross profit per ton of steel decreased significantly compared with the third quarter, and the dividend rate remained stable.
It is expected that the operation of real estate will be weak in 2019, and we are optimistic about the improvement of management efficiency after Fangda's shareholding in the long term.
Main points of investment:
Maintain the "overweight" rating. In 2018, the company achieved an operating income of 20.777 billion yuan, an increase of 15.5% over the same period last year, and a net profit of 1.197 billion yuan, a slight decrease of 0.78% over the same period last year. The company's fourth-quarter results were lower than expected, with revenue of 4.972 billion yuan in the fourth quarter, up 8.53% from the same period last year. Due to the sharp drop in steel prices, the net profit in the fourth quarter was-80 million yuan, down 137.76% from the same period last year. Considering the weak downstream demand in 2019, the company lowered its 2019 EPS to 0.37 in 2020 (formerly 0.55 in 2020), and added a forecast of 0.55 in EPS in 2021. Taking into account the obvious improvement in the management efficiency of the company after Fangda's shareholding, maintain the company's target price of 4.88 yuan and maintain the "overweight" rating.
Sales remained high in the fourth quarter, with gross margins per ton of steel falling sharply compared with the previous quarter. The company's steel sales in the fourth quarter of 2018 were 1155,155,146,1.29 million tons respectively, with a year-on-year increase of 9.5 per cent in the fourth quarter. In 2018, the average steel sales price of the company was 3809 yuan / ton, the gross profit per ton of steel was 484yuan / ton, and the corresponding net profit per ton of steel was 219yuan / ton. the annual gross profit and net profit per ton of steel decreased by 97 yuan / ton and 88 yuan / ton respectively compared with the first three quarters of 2018.
The dividend rate remained stable and the asset-liability ratio fell sharply. The company announced a cash dividend of 0.44 yuan per share, with a dividend rate of 10% in 2018, the same as in 2017. Benefiting from good earnings in 2018, the company's asset-liability ratio fell to 53.45%, down 3.31 percentage points from the end of 2017.
The overall demand is weak in 2019, and the management efficiency will be improved after Fangda takes a stake. New real estate starts in 2019 are subject to shrinking sales and pressure from the inventory side, and the overall demand for steel downstream in 2019 is weak.
We expect the profit center of the iron and steel industry to move down in 2019, and the company's profits will decline compared with the same period last year. In the long run, Fangda's shareholding in the company will improve the management efficiency of the company, and the company's future performance can be expected.
Risk hint: macroeconomic decline accelerated; supply-side rise exceeded expectations.
