Main points of investment
Judicial restructuring set sail again: Chongqing Iron and Steel's investment in the process of relocation and production expansion seriously exceeded the standard, and after the cold winter of the industry, it became insolvent at the end of 2016, and finally completed the judicial reorganization at the end of 2017, and the actual controller of the company was changed to four sources of investment. The nature of the enterprise has changed from state-owned holding to mixed ownership. At present, the company has a steelmaking capacity of 8.4 million tons, including 2.8 million tons of medium and heavy plate, 3.5 million tons of hot rolled sheet, 850000 tons of bar and wire rod and 300000 tons of profiles.
Geographical location double-edged sword: Chongqing is located in the interior, the surrounding lack of iron ore and coking coal and other raw materials, and the original main product marine steel plate is far away from the market, forming a "two ends out" natural disadvantage. But at the same time, Chongqing and southwest regions are in the area of net inflow of steel and there is a perennial premium. According to Mysteel data, the apparent steel consumption in Sichuan and Chongqing in 2018 is 35 million tons, while the corresponding output is only 30 million tons, there is still a gap between supply and demand of 5 million tons. The company's products are mainly sold in the southwest and along the Yangtze River, with superior logistics conditions close to the Yangtze River wharf and obvious comparative advantages in the regional market.
Getting better: after judicial restructuring, the company takes "full production, full sales, and low cost" as the core strategic goal, gives full play to regional advantages, and adjusts market positioning and product results:
Based in Sichuan and Chongqing: in order to overcome geographical disadvantages and give full play to its advantages, the company will shift more production and sales to Sichuan and Chongqing, on the one hand, actively shrink ship plate business and retain boiler steel plates and pressure vessel products that are more in line with the needs of Sichuan and Chongqing; on the other hand, by increasing the proportion of direct and strategic suppliers and tapping local resources to reduce the procurement cost of raw materials
Structure adjustment: in order to correct the mismatch with the dominant market, it is planned to gradually adjust nearly half of the original production capacity of medium and heavy plate to hot coil and wire rod, and it is planned that by 2020, the output of hot rolled sheet, rod and wire rod and medium plate accounts for 40%, 40% and 20%, respectively.
Improvement in indicators:
1. Output: the company produced 3.2506 million tons of steel in the first half of 2019, achieving 50.79% of the annual target, recovering capacity utilization to 77.4%, and achieving steel sales of 3.1322 million tons, an increase of 188700 tons over the same period last year, the best level in history.
two。 Finance: gross profit margin and net profit margin reached 17.1% and 8.49% respectively in Q3 in 2018, reaching quarterly highs since listing. In the first half of 2019, the comprehensive gross profit margin was 9.94%, down 5.82% from the same period last year, mainly due to higher costs caused by rising iron ore prices; during the period, the expense rate was 3.93%, down 0.54% from the same period last year, and the third fee per ton of steel decreased by 48% to 144 yuan, mainly because the financial expenses decreased by 48.4% due to the reduction in the occupation of production and operation funds; the net profit margin was 5.36%, down 1.51% from the same period last year, and the net profit per ton of steel decreased 62 yuan to 197 yuan from the same period last year. The asset-liability ratio is 28%, well below the average
3. Efficiency: effectively split the group and stock personnel in iron and steel mergers and acquisitions. By the end of 2018, the number of in-service employees has been reduced by 48 to 6443 compared with 2013, while the per capita steel output has increased to 990t, nearly double that of 2013.
Investment suggestion: as a leading steel enterprise in Sichuan and Chongqing, after judicial reorganization, the company advances in stages according to the venation of "hemostasis, hematopoiesis and upgrading", and qualitative changes have taken place from development strategy to production and operation to financial indicators. However, considering that the prosperity of the industry is in the downward stage and the company's endogenous marginal improvement space may be partially hedged, we expect the company's EPS to be 0.12,0.15 and 0.17 yuan in 2019-2021, covering the "hold" rating for the first time.
Risk hints: the sharp decline in the macro-economy has led to pressure on demand; supply-side pressure continues to increase.