Midline logic: Xinjiang fixed asset investment back to more than 20% growth, Xinjiang demand burst, excess capacity cleared, regional dividends highlighted. Demand side: infrastructure investment in Xinjiang is mainly policy-driven, so it fluctuates greatly. The cumulative growth rate in the first five months of this year has returned to a range of more than 20%, the fastest growth rate in 18 years. Supply side: over the past 15 years, the excess capacity in Xinjiang has been gradually cleared, the representative companies of Shougang Yili and Shangang Xinjiang have withdrawn from the market, and the structure of regional supply and demand has been adjusted to a reasonable state, so it is difficult to increase supply by a large margin. At the same time, the cost of non-local steel entering Xinjiang is extremely high. taking Shaanxi, the recent low-price market, as an example, only considering that the freight per ton of steel for railway transport is already about 350 yuan, and taking into account the costs of loading, unloading and leaving the factory, it costs about 500 yuan to be transported to Xinjiang, so it is extremely difficult for non-local resources to enter Xinjiang. As a result, the tight supply and demand situation in the local market will continue, and market prices and corporate profits will rise sharply.
Short-term catalysis: the second quarter performance is expected to reach 400 million, the report is expected to become a catalyst.
We expect the company's performance to break out in the second quarter. 1) affected by the epidemic and climate, the company's production and sales rate was only 81% in the first quarter, and its inventory increased by 210000 tons in a single quarter. This part of the inventory will achieve sales in the second quarter and increase profits. 2) the company mainly uses domestic mines, and the cost fluctuation is smaller than that in the external market. When the Platts price index rose as high as 29% in 19 years, the purchase cost per ton of iron ore increased by only 9%. It is inferred that the company's cost this year is still less disturbed. The price increase in the second quarter can be fully translated into profit. 3) the company will adjust the proportion of sales inside and outside Xinjiang according to the market situation, and the proportion of sales in Xinjiang will increase significantly in the second quarter, thickening gross profit and greatly reducing sales expenses at the same time. To sum up, we estimate that the company's second-quarter performance will reach about 400 million yuan, and the China News is expected to become a short-term market catalyst.
Profit forecast and investment advice: based on the above estimates, we expect the company's return net profit from 2020 to 2022 to be 1.518 billion yuan, 1.772 billion yuan and 1.888 billion yuan respectively, with an increase of 1340%, 23.8% and 6.4%, respectively. As a leading enterprise in the iron and steel industry in Xinjiang, the company has regional advantages in Xinjiang. The infrastructure investment construction of "Belt and Road Initiative" and the large-scale development of the western region is expected to give a large boost to the demand in Xinjiang, covering it for the first time and giving it a "holding increase" rating.
Risk analysis: steel demand in Xinjiang is rising less than expected: weakening policy stimulus or counterattack of epidemic situation may affect steel demand.