Main event: the company issued an annual performance forecast for 2019, which is expected to achieve a net profit of 23-2.7 billion yuan, down 25.5% from the same period last year.
Q4 median performance improvement: according to the performance forecast range, the company's net profit in the first four quarters was 370 million yuan, 800 million yuan, 620 million yuan and 52-920 million yuan, respectively. If you look at the median of the forecast range, Q4's profit is improved month-on-month, and the profit level is slightly lower than Q2. In addition, from a year-on-year point of view, the negative growth rate shrank from-47% in the previous three quarters to-25.5% and 36.6% in the whole year, mainly due to a low profit base in the fourth quarter of 2018.
The main reason for the decline in annual performance: the increase in industry surplus caused by the release of supply is the main reason for the decline in industry and corporate performance in 2019. Although steel demand has achieved a high growth of about 7% driven by strong real estate investment, due to factors such as the relaxation of blast furnace production restrictions and the expansion of technological transformation capacity, supply growth is even more serious than demand, industry bargaining power is under pressure, gross profit per ton of steel has dropped, and the performance growth of listed companies is generally around-40% year-on-year.
The company's three major production bases are all located in the production-limited area, and production was suppressed due to environmental production restrictions in 2018, and the company's steel output has increased since 2019, but under the background of the weakening relationship between supply and demand in the industry as a whole, the increase in production can only offset part of the decline in performance.
The reasons for the recovery in the fourth quarter: the short-term rebound in steel inventories and the expansion of demand are the main reasons for the rebound in industry profits in the fourth quarter of 2019. The short cycle of steel inventory bottomed out in October, the mood of the industrial chain was overadjusted, social inventory hit a five-year low, superimposed by the significant expansion of demand after 11 years, and sentiment resonated with real demand to push steel prices and ton profits back to a higher level. In addition, the performance of hot rolling is stronger than thread in stages, and the profit difference between hot rolling and thread has been repaired. As a plate-based enterprise, the company is relatively more beneficial.
The rights issue has been examined and approved: the company announced in March that it intends to allocate to all shareholders in the proportion of not more than 3 shares for every 10 shares, the total amount of funds raised shall not exceed 8 billion yuan, and all the net amount after deducting the issuing expenses will be used to repay the company's interest-bearing liabilities. For a long time, the company's asset-liability ratio has been more than 70%, which is at a relatively high level in the industry, resulting in high financial costs. Through this rights issue, the asset-liability ratio is expected to fall to 67.7%, which will help to reduce financial risk. At present, the rights issue has been examined and approved by the China Securities Regulatory Commission.
Investment advice: steel industry profits rebounded to a relatively high level after November 2019, and the performance of Q1 company is expected to continue to improve. At the corporate level, the implementation of the future rights issue plan will effectively solve the company's long-standing problem of high asset-liability ratio and improve profitability. It is estimated that the company's EPS from 2019 to 2020 will be 0.23 yuan and 0.24 yuan respectively, the current valuation level of the company is on the low side, and the PB is only 0.56x, which does not fully reflect the recent fundamental repair and maintain the "overweight" rating.
Risk tips: macroeconomic downturn is expected, supply increases risk, environmental protection production limit risk.