The company made a profit of 180 million yuan in 2019, a year-on-year increase of 79%.

On March 20, 2020, the company released its 2019 annual report: operating income of 1.34 billion yuan (YoY+28.3%) and net profit of 180 million yuan (YoY+78.8%) belonging to the shareholders of the parent company in 2019.

The operating income of 2019Q4 is 320 million yuan (YoY+21.3%,QoQ-22.9%), and the net profit of shareholders belonging to the parent company is 6 million yuan (YoY-79.4%,QoQ-93.9%). Due to the increase in Q4 costs and expenses, the performance is slightly lower than the previous expectations. Iron ore is still in the production capacity contraction cycle for a long time, and the ore price may still be strong. We expect the company to maintain a "overweight" rating of 0.32 EPS 0.33 yuan in 2020-22.

The volume and price of iron concentrate rose throughout the year, and Q4 gross profit margin fell month-on-month.

In 2019, the sales volume of iron concentrate powder was 1.28 million tons (YoY+7%), the unit price, cost and gross profit were 772,571,202 yuan / ton (YoY+22%, + 16%, + 40%) respectively, and the gross profit margin of iron concentrate powder was 25% (YoY+1pct), mainly due to the rise in mineral prices. In the same period, the average price of iron ore Australian PB powder (excluding tax) is 627 yuan / ton (YoY+176 yuan / ton, + 39%). 19Q4, the company's gross profit margin of 16.1% (YoY-5.4pct, QoQ-14.8pct), may be due to a month-on-month decline in iron ore prices, a year-on-year decline or due to higher mining costs in some of the company's mines and an increase in outsourced mines. The average price of 19Q4 iron ore is 597 yuan / ton, YoY+104 yuan / ton, + 21% QoQtel 115 yuan / ton,-16%.

The increase in Q4 expense rate is a drag on earnings, and the full-year cash flow significantly improved the company's expense rate of 11% (YoY-4pct) in 2019, mainly due to the management expense rate year-on-year-3pct.

However, during the 19Q4 period of the company, the expense rate is year-on-year + 3pct, month-on-month + 13pct, in which the management expense rate is year-on-year + 5pct and month-on-month + 12pct, mainly because the salary of managers is + 5% year-on-year, and the salary of managers for the whole year is 262% higher than that of 19H1, or some of the salaries are paid centrally in Q4, resulting in a higher expense rate.

In 2019, the company's net operating cash flow was 430 million yuan (YoY+36%), accounting for 124% of operating income (YoY+2pct), mainly due to the increase in cash from the company's sales. In the same period, the company's receivables and prepaid items accounted for 35% and 4% of revenue (YoY-20pct,-1pct), resulting in a significant increase in downstream funding capacity.

If the supply of foreign ore is blocked, it will be good for local mining enterprises and mineral prices.

We believe that if the overseas epidemic continues to worsen, we will not rule out the closure of ports in major iron ore producing areas such as Australia and Brazil. Due to China's high dependence on imported ore and rigid demand for iron ore, port closure or hindrance to the supply of imported ore, steel mills may increase the demand for domestic ore, which is good for local mines and ore prices, and the company is expected to benefit.

In addition, domestic port inventories remain historically low, and downstream demand gradually increases with the resumption of work, iron ore consumption or upward, if the supply of imported ore is blocked, ore prices may continue to rise.

Pay attention to the disturbance of iron ore supply and maintain the rating of "overweight"

We believe that the short-term epidemic may lead to disruption of foreign mineral supply, which is good for local mining enterprises and mineral prices; in the long run, iron ore production is still in a cycle of capacity contraction, and mineral prices may be strong, and the company is expected to benefit. Considering the negative impact of the epidemic on demand, we downgrade our profit forecast and estimate that the company will have an EPS of 0.32 EPS 0.33 RMB in 2020-22 (the previous value is 0.37 max 0.40 RMB in 2020-21). In 2020-22, the BVPS is 4.65 pound 4.97 pound 5.30 yuan (the previous value is 4.74pm 5.14 yuan in 2020-21), corresponding to PB 1.12 pound 1.05 pound 0.98 times, comparable company PB (2020E) average 1.35 times. Considering the large gap between the company's iron ore reserves and the four major mines, it is given 1.20-1.25 times PB in 2020, and the target price is 5.58-5.81 yuan, maintaining the "holding increase" rating.

Risk tips: deregulation of iron ore ports; a sharp decline in downstream demand; and worsening of the global epidemic.