The company's 19Q2 made a profit of 54.7 million yuan, an increase of 108% over the same period last year.
On August 23, 2019, the company released its 2019 mid-term report: 2019H1 operating income of 608 million yuan (YoY+34.3%); net profit of shareholders belonging to the parent company 84.35 million yuan (YoY+106.4%).
The operating income of 2019Q2 is 320 million yuan (YoY+54.6%,QoQ+10.9%) and the net profit of shareholders belonging to the parent company is 54.7 million yuan (YoY+108.4%,QoQ+84.5%), which is in line with the previous expectations. Based on the pace of resuming production of the four major mines and the judgment of future demand, we downgrade the company's profit forecast. It is estimated that the company's EPS for 2019-2021 will be 0.29max 0.37pm 0.45 yuan, with a previous value of 0.32pm 0.40max 0.47 yuan, maintaining the "overweight" rating.
The quantity and price of iron concentrate have gone up, and the rate of Q2 expense has decreased obviously.
The sales volume of 2019H1 iron concentrate powder is 640000 tons (YoY+4.0%), and the unit price, cost and gross profit are 745,544,201 yuan / ton (YoY+38.6%, 39.4%, 36.3%) respectively, mainly due to the increase in mineral prices. In the same period, the average price of iron ore Australian PB powder is 711 yuan / ton (YoY+33.7%), of which the average price of 2019Q2 is 743 yuan / ton (YoY+55.4%, QoQ+19.5%). 2019H1 iron concentrate powder has a gross profit margin of 27.0% (YoY-0.4pct). We believe that the increase in external mining and the difficulty of mining in Houzhuang Mine are the main reasons for the slight increase in costs. 2019Q2, the expense rate during the company is 7.4% (YoY-7.6pct, QoQ-3.6pct), accounting for the relatively high management expenses decreased more, Q2 management expenses 20.78 million yuan (YoY-5.6%, QoQ-8.0%), mainly due to the decline in employee salary.
Q2 cash flow improved significantly and the number of projects payable at the end of the period decreased.
2019Q2, the company's net operating cash flow is 177 million yuan (YoY+198%, QoQ+169%), accounting for 55.3% of operating income (YoY+26.6, QoQ+32.5pct). This is mainly due to the increase in cash from the company's sales compared with the previous month. 2019H1, the proportion of receivables and prepaid items to operating income is 78.6% and 12.8% (YoY-23.3, + 9.3pct), and the proportion of payable and prepaid items to operating costs is 15.9% and 4.8% (YoY-20.4,-0.01pct).
It is expected that the 19Q3 and Q4 ore prices will be adjusted back, and they are still bullish in the medium and long term.
We expect ore prices 19Q3 and 19Q4 to decline quarter-on-quarter, mainly because the month-on-month increment of iron ore demand in the same period is less than that of the four major mines in the same period. However, in the next two years, we are still bullish on the average price of iron ore, mainly because the iron ore energy is still in the contraction stage, while China, Southeast Asia and India have entered the long-process capacity expansion stage. We estimate that the increment of global iron ore demand / the four major mineral production increments in 2020 and 2021 will be 4600 and 470 million tons respectively, which will still have a price increase pattern in the medium and long term. We maintain the upward judgment of the average iron ore price from 2019 to 2021, and the average price is expected to rise by 150 yuan / ton this year compared with the same period last year.
The correction of mineral prices may lead to a decrease in profits and maintain the "overweight" rating.
Due to the 2019Q3, Q4 ore price or month-on-month pullback, we downgrade the company's profit forecast. It is estimated that the company's BVPS in 2019-21 will be 4.31 BVPS 4.68 pound 5.13 yuan, PB1.22/1.12/1.02 times, comparable company average PB (2019E) 1.72 times, considering that the company's iron ore reserves are far less than those of the four major mines, give the company 1.30-1.40 times PB in 2019. The target price is 5.60-6.03 yuan, maintaining the "overweight" rating.
Risk tips: iron ore price correction increased; demand fell sharply; production and sales of the company's products declined.