1H20 performance is in line with our expectations
The company announced 1H20 results: 1H20 revenue 50.438 billion yuan, year-on-year-19.2%; return to the mother net profit 693 million yuan, year-on-year-40.7%; of which 2Q20 revenue 26.855 billion yuan, year-on-year-18.76%, return to the mother net profit 464 million yuan, year-on-year-42.0%, basically in line with our expectations. Comments:
The volume and price of steel has fallen, but the gross margin space is still resilient. We estimate that the average selling price of 1H20 steel affected by the epidemic is about-5% to 4400 yuan / ton year-on-year (sales are down about 13% year-on-year), but the cost per ton of steel is-7% year-on-year, and gross profit per ton steel rose 48 yuan to 561 yuan year-on-year, which is about 9% higher than the same period last year (corresponding to a 1.7ppt increase to 12.7% year-on-year). However, due to the high cost of the company (mainly due to the higher increase in financial expenses), the decline in the company's net profit is greater than the income range.
Production of vanadium products rose slightly, but gross profit margin fell sharply. The company has 87600 tons of vanadium slag in the first half of the year, which is + 2% compared with the same period last year. However, due to the company's vanadium product price drop of about 30%, gross profit margin year-on-year-8.7ppt to 22.1%.
Balance sheets and cash flows are still under pressure. Due to the decline in profits from the same period last year and the pressure on operating items such as projects payable, the company's operating cash flow in the first half of the year decreased by 26.4% year-on-year to 3 billion yuan, of which in the second quarter alone, it fell by about 1 billion yuan to-2.07 billion yuan. In addition, the company's year-end net debt ratio rose to 113% at the end of 2019, which is still at a high level.
Trend of development
The product structure is continuously optimized. At the product end, special products such as variety steel and high-end steel continue to make efforts to meet the high-end needs of automakers such as BMW and Mercedes-Benz, and match customized products such as Haier and Hisense; at the channel end, the company continues to improve its customer structure and promote the "Hegang direct supply model". Increase bidding efforts to enhance the proportion of direct supply to major projects and strategic customers.
2H20 is expected to improve month-on-month. Looking forward to the second half of the year, the supply of the iron and steel industry is still at a high level, but the demand for automobiles and household appliances has improved, showing a situation of high supply and stable demand, and the space for steel price increase is limited. We believe that with the release of 2H20 demand and the resumption of overseas work and the improvement of external demand, the company's steel prices are expected to continue to repair during the peak season, driving the performance of month-on-month repair.
Profit forecast and valuation
Due to the reduction of sales assumptions, we reduced 2020e EPS by 4.1% to 0.14 yuan, leaving 2021eEPS unchanged. The company's current share price corresponds to 2020max 21e 0.4x/0.4x Pamp B, maintaining a neutral rating. We maintain the target price of 2.60 yuan and neutral rating unchanged, corresponding to 2020/21e0.5x/0.5x Pmax B, there is 16% upside space.
Risk.
Peak season demand is lower than expected, iron ore prices remain high.
