Introduction to this report:
The company is a large steel enterprise in the Yangtze River Delta region, and its business in the steel sector is running steadily. The company plans to acquire the parent company's trade assets. If the acquisition is completed, the company's trade sector will usher in a new stage of development with key investment points:
The first coverage gave an “increase in holdings” rating. The company is a large steel company in the Yangtze River Delta region. We expect the company's EPS in 2019-2021 to be 0.37, 0.45, and 0.48 yuan respectively. Referring to steel companies of the same type, the company was given a 2019 PE 14X corresponding target price of 5.24 yuan, covered for the first time, and gave the company an “increase in holdings” rating.
Real estate investment is stable, and car sales are not pessimistic. The current boom in real estate demand has continued for three and a half years from the end of 2015 to now, and there has been no sharp decline so far. We think this core comes from low inventories and a tight financing environment for real estate developers. We believe that real estate investment was stable in the third quarter, and infrastructure will contribute incrementally due to improved funding sources. Automobile sales will gradually pick up with the implementation of the National Six Standard. Currently, we should not be overly pessimistic about automobile sales. Furthermore, maintaining a high growth rate in sales of excavators and household appliances, and active investment in oil and gas will also support downstream demand for plates, and overall board demand is stable.
The company is close to the port, and the cost advantage of raw fuel transportation is obvious. Ningbo Steel is geographically located close to Ningbo Port. The bulk raw fuels purchased by the company, such as iron ore, coal, and coke, are unloaded directly to the company's warehouse through the Beilun Port process, and there is no need to ship them. In 2018, the cost of the company's tonne mine was reduced by 60 yuan, which is equivalent to the cost of one ton of iron water and the cost of hot coiling reduced by 100 yuan/ton.
The company plans to acquire trade assets under the Group to further expand the company's trade sector. The company announced in 2019 that it intends to acquire metallurgical materials under Hanggang Group, Hangzhou Steel International Trade (99.5% of shares), Dongling Trading and Fuchun Company's trade assets. If the acquisition is completed, the trade assets of Hanggang Group will be listed as a whole, synergies between the company and the trade sector may increase, and the company's competitiveness will increase.
Risk warning: Real estate investment declined sharply; automobile sales continued to decline; company acquisitions fell short of expectations.