Event
On August 18, the company announced its semi-annual report for 2020: its revenue in the first half of the year was 9.248 billion yuan, down 13.04% from the same period last year. The net profit was 152 million yuan, down 60.02% from the same period last year. Raw material costs rose, production and sales fell, steel prices fell, resulting in a decline in the company's performance in the first half of the year. China is currently the world's largest importer of iron ore, mainly relying on the world's four major iron ore suppliers Rio Tinto PLC, BHP Group Ltd, Vale SA and FMG to supply the Chinese market, affected by the Brazilian mining disaster superimposed by the overseas COVID-19 epidemic. Iron ore prices have remained high since January, with 62 per cent of Australian powder forward spot prices of US $109.10 per dry ton in June 20, up 5.11 per cent from the previous month, according to mysteel data. The company's main products are bar, plate, strip, wire, etc., affected by the epidemic, the overall trend of domestic steel prices is lower. Take Shenyang as an example, the average price of rebar HRB400:20mm, one of the company's main products, was 3522.31 yuan / ton in the first half of this year, a month-on-month decrease of 208.47 yuan / ton, a decrease of 5.59%. The company's iron output in the first half of 2020 was 2.6582 million tons, down 1.59% from the same period last year; steel output was 2.8174 million tons, down 3.49% from the same period last year; commodity output was 2.7805 million tons, down 4.38% from the same period last year; and steel sales were down 6.63% from the same period last year. The increase in the cost of raw materials, the decline in production and sales, the delay in downstream demand and the decline in product prices have greatly affected the company's performance.
Fine management, reducing cost and efficiency, reducing epidemic situation, further adjusting ownership structure, paying attention to long-term influence, actively reducing the impact of epidemic situation on output, reducing cost and consumption through refined full-caliber, etc., and promoting further cost reduction with the high yield and high efficiency of the whole chain to achieve optimal benefits. Although the company's production and sales volume declined in the first half of the year compared with the same period last year, steel output and revenue basically completed 50% of the annual plan, and the progress plan was initially completed. In addition, compared with the 19 annual report, the company's ownership structure was further adjusted: Tianjin Taiyue Investment Management Co., Ltd. increased its shareholding by 27.71 million shares, accounting for 1.00% of the company's total share capital, from February 4, 2020 to June 5, 2020. Tianjin Taiyue holds 580 million shares of the company, accounting for 20.94% of the total share capital. The shareholding proportion of Hongyun (Shenzhen) Capital Co., Ltd., the fourth largest shareholder of the company, decreased to 6.5% from 8.5% at the end of 1919. It is necessary to pay continuous attention to the possible impact of the change of ownership structure on the operation of the company in the later stage. On the other hand, the company is located in Lingyuan City, where Liaoning, Hebei and Inner Mongolia provinces meet, adjacent to important steel consumer markets such as Beijing and Shenyang, and the transportation is more convenient from the port. With the gradual control and stability of the epidemic, downstream demand and company production and sales will gradually improve, the decline of steel inventory will bring steel prices back, the company's performance is expected to be improved in the second half of the year.
Investment suggestion
Affected by the epidemic and the rise in raw material prices, the company's performance was lower than expected. We adjusted the company's EPS from 0.22,0.25RMB per share to 0.11,0.16RMB per share in 2020-2021. It is estimated that EPS will be 0.16RMB per share in 2022, maintaining the "hold" rating.
Risk hints: changes in the epidemic situation beyond expectations, changes in Sino-US trade and macro policies, and other unpredictable risks in the company's own business.
