Chongqing Iron and Steel reported a 19.2 per cent year-on-year drop in 2019H1 net profit in 2019. The company's 2019H1 realized operating income of 11.5 billion yuan, an increase of 3.5% over the same period last year, and a net profit of 616 million yuan, down 19.2% from the same period last year. The gross profit of 2019H1 per ton of steel is 369 yuan, and the net profit per ton of steel is 199 yuan. The profit robustness of 2019H1 is better than that of the industry, and the year-on-year decline in net profit is significantly lower than the industry average. The total net profit of the seven listed steel companies that have disclosed medium reports or performance forecasts is down 47 per cent from the same period last year.
The output continues to grow, reducing costs and increasing efficiency significantly, helping the company's profit robustness is better than that of the industry. The reason why the company's profit robustness is better than that of the industry is mainly due to the following reasons: (1) after judicial restructuring, the company's production has gradually resumed, and the steel output of 2019H1 Company has increased by 4.4% compared with the same period last year; (2) the product structure has been upgraded, and the operating income per ton of steel of 2019H1 Company is 3705 yuan, which is the same as the same period last year; (3) strengthening corporate governance, reducing costs and increasing efficiency significantly, the cost per ton steel period of 2019H1 Company is 146yuan / ton, a sharp drop of 53% compared with the same period last year. After the restructuring, the crude steel production capacity of the company is 8.4 million tons, and there is still room for growth in the future.
2019Q2's single-quarter net profit increased significantly by 209% from the previous quarter. 2019Q2 achieved an operating income of 6.176 billion yuan in a single quarter, an increase of 3.96 percent over the same period last year, an increase of 16.3 percent over the same period last year, a net profit of 465 million yuan, an increase of 13.1 percent over the same period last year, an increase of 209 percent over the previous quarter, and a net operating cash flow of 227 million yuan, which significantly improved the company's performance in the second quarter.
It is expected to cooperate deeply with Baowu Group in the future. After the reorganization of the company, the former Chongqing Iron and Steel Group has gradually withdrawn from the management, and the senior executives such as the chairman and general manager are held by former Baowu Group executives, which is conducive to the company's more efficient production and operation and beneficial to the company's profit recovery. Recently, the chairman of Baowu Group visited the old factory area of Chongqing Iron and Steel Co., Ltd., and the company and Baowu Group may have deeper cooperation in the future.
For the first time, coverage gives an "overweight" rating. We estimate that the EPS of the company from 2019 to 2021 is 0.14,0.11,0.10 yuan respectively. With reference to the valuation of the comparable company, the A share price of the company is 2.10 yuan and the H share price is 1.10 Hong Kong dollars. The company has a dividend for production growth, and it is good to strengthen cooperation with Baowu, and its profit robustness is better than that of the industry. we cover it for the first time and give the company an "overweight" rating.
Risk tips: corporate governance risk, steel price fluctuation risk and so on.
