Event
On August 29, the company released its 2019 half-yearly report. During the reporting period, the company realized net profit of 251 million yuan belonging to shareholders of listed companies, down 75.32% from the same period last year, and basic earnings per share of 0.087 yuan per share, compared with 0.425 yuan per share in the same period last year. In the second quarter, the company realized a net profit of 194 million yuan belonging to shareholders of listed companies, an increase of 240.35% over the first quarter.
Profits due to rising costs improved in the second quarter compared with the previous quarter.
The company is a large-scale iron and steel joint enterprise integrating coking, sintering, smelting, rolling and scientific research and development. the main steel varieties include medium and heavy plates, hot rolled coils, high-speed wire rods, building materials and profiles. China's iron ore price index rose 28.88 per cent to 320.52 in the first half of 2019, compared with 248.69 in the same period last year. The price of raw materials has risen rapidly, while the price of finished wood has fallen. The average price of hot rolled coil Q235B:4.75mm in Zhengzhou was 3872.62 yuan / ton in the first half of this year, 6.16% lower than the average 4126.83 yuan / ton in the first half of last year. The rise in the price of raw materials and the decline in the price of finished products have led to a decline in the company's profitability compared with the same period last year.
After the end of the heating production limit in the second quarter, the company's output of profile and plate and strip was 138900 tons and 1.6953 million tons respectively, an increase of 78.53% and 126.47% respectively over the first quarter. The company's steel output and product prices rose, making the second quarter profit significantly better than the first quarter.
Planned investment in the construction of new production lines to increase the output of building materials
According to the company announcement, the company's holding subsidiary, Angang Zhoukou Iron and Steel Co., Ltd., plans to invest in six projects, including raw material yard, oxygen production station and 265 kilo sintering machine (including desulphurization and denitrification). Upon completion, the project will have 1.58 million tons of pig iron, 1.75 million tons of crude steel and 1.66 million tons of rod and wire rod. The construction period of the project is 15 months, with an estimated investment of 5.83797 billion yuan, with an estimated annual income of 5.976 billion yuan and a net profit of 390.65 million yuan.
The optimization of financial data is good for the company's long-term development.
In the first half of the year, the company's sales expense / operating income ratio, administrative expense / operating income ratio and financial expense / operating income ratio were 0.91%, 2.98% and 2.49%, respectively. In the second quarter, the rates of the three expenses (sales expenses, management expenses and financial expenses) were 0.81%, 2.40% and 2.06%, respectively, which were significantly lower than those in the first quarter. As of the first half of 2019, the company's asset-liability ratio was 72.29%, down 2.18 percentage points from the end of the previous year. The company's gross sales margin also showed an upward trend, with a gross sales margin of 11.65% in the second quarter of 2019, up 2.09 percentage points from 9.56% in the first quarter.
Investment suggestion
Considering that the year-on-year high iron ore prices may lead to a decline in profits, we will adjust the company's EPS from 1.17,1.32 yuan per share to 0.21 yuan per share and 0.27 yuan per share in 2019-2020. it is expected that the company's EPS will be 0.31 yuan per share in 2021, maintaining the "overweight" rating.
Risk tips: the decline in steel prices leads to the contraction of the company's net profit, the output changes caused by the company's equipment production and maintenance, and the changes in operating costs caused by the company's own management.
