Event: the company publishes its third-quarter earnings report for 2020.
Main points of investment:
The company's profit rose by 183% in the third quarter. In the first three quarters of 2020, the company realized operating income of 22.634 billion yuan, down 3.44% from the same period last year; the net profit belonging to shareholders of listed companies was 18 million yuan, down 95.18% from the same period last year; and the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 13 million yuan, down 96.50% from the same period last year. The net cash flow of business activities was 432 million yuan, an increase of 10.77% over the same period last year. In the third quarter of 2020, the company achieved operating income of 8.838 billion yuan, an increase of 3.35% over the same period last year, a profit of 360 million yuan for shareholders belonging to the parent company, an increase of 182.81% over the same period last year, and a net profit of 353 million yuan excluding non-recurring profits and losses, an increase of 164.71% over the same period last year. Net profit increased sharply in the third quarter, and the company's performance ushered in an inflection point.
The rise in the volume and price of plate and strip led to a substantial improvement in performance. The company sold 1.7534 million tons of plate and strip in the third quarter, an increase of 10.84% over the same period last year, and the sales price of plate and strip in the third quarter was 3688.3 yuan / ton, an increase of 4.38% over the same period last year. As a result, the company's gross profit margin rose to 14.21% in the third quarter. The company's gross profit margin for the first three quarters of 2020 was 9.58%, 3.04 percentage points higher than the mid-2020 report and only slightly lower than the full-year gross profit margin of 9.84% for 2019.
The cost control of the company is effective, and the investment in R & D is increased. The company's revenue in the third quarter increased by 3.35% compared with the same period last year, but operating costs decreased by 1.32%, sales expenses basically did not grow, financial expenses increased by only 1.29% year-on-year, and R & D expenses increased by 41.82%.
The company is an important iron and steel enterprise in the central region, benefiting from the continuous improvement of urbanization. The company is a large-scale iron and steel joint enterprise integrating coking, sintering, smelting, rolling, scientific research and development, which can produce medium and heavy plate, hot rolled coil plate, cold rolled coil plate, high speed wire rod, building material, profile and so on. In 2019, Anyang Iron and Steel Group ranked 41st in the world and 21st among domestic steel enterprises among the top 50 crude steel enterprises in the world. Due to the existence of a certain sales radius of iron and steel, the company focuses on Henan and its surrounding markets. The strategic layout of "one south" (Zhoukou) and "one north" (Anyang) has been formed in Henan province. The production capacity of Anyang is about 10 million tons. In 2018, the company invested in the establishment of Henan Angang Zhoukou Iron and Steel Co., Ltd., the company is the largest shareholder and holds 40%. In 2019, Zhoukou of Anyang Iron and Steel Co., Ltd. plans to invest in six projects, including raw material yard, oxygen production station and 265 kilo sintering machine (including desulphurization and denitrification). After completion, the project will have 1.58 million tons of pig iron, 1.75 million tons of crude steel and 1.66 million tons of rod and wire rod. The project is expected to be completed in 2021 and is expected to increase the company's revenue. At the same time, Henan, as a populous province, has a urbanization rate of about 53.21% in 2019, which is lower than the national average of 60.6%. There is more room for infrastructure investment and consumption in the province.
The company's high-end products have obvious characteristics, and the sales of automotive steel have increased significantly. The company adheres to the leadership of "high-end products and high-end customers", actively docks terminal customers, makes every effort to open up direct supply channels, and the proportion of direct supply and direct sales reaches 60.5%, creating a competitive advantage of "high-end, low-cost, differentiated" products to promote the company's high-quality development. Since 2020, the company has developed 37 new grades and specifications, carried out the GL1 hard production test of oriented silicon steel, the full-process trial production of non-oriented silicon steel AGW470 and AGW800, and realized the full-process development of high magnetic induction oriented silicon steel Hi-B. The company applied for 71 national patents and authorized 19. The company promotes the brand strategy, the proportion of variety steel is 84.08%, the proportion of variety material is 85.49%, the increase of automobile steel production and sales volume are more than 50%, continue to lead the domestic market.
Demand pick-up superimposed iron ore prices fall, steel companies profit improvement or according to sustainability. Affected by the epidemic in the first half of the year, iron and steel enterprises are facing a decline in demand, iron ore supply constraints after the double squeeze of prices, business performance declined sharply. With the effective control of the domestic epidemic situation and the smooth progress of vaccine development, the domestic downstream demand is picking up rapidly, the consumption rate of steel inventory is accelerating, and the social inventory is at a low level. At the same time, the supply of iron ore tends to be loose, the supply of overseas iron ore is gradually increasing, Australia's iron ore shipments have returned to previous years' levels, and Brazil's shipments are about 20% higher than in previous years, and iron ore prices are showing a high downward trend. According to the latest research results of Mysteel, the inventory of imported iron ore in 45 ports across the country is 124.1558 million tons, an increase of 1.7706 million tons over last week and a nine-week increase; the average daily dredging volume is 3.0829 million tons, down 35600 tons. Overall, the upstream and downstream environment of steel enterprises is improving, and the performance improvement is expected to continue.
Profit forecast and valuation: it is estimated that the fully diluted EPS of the company from 2020 to 2022 is 0.09,0.17,0.25RMB respectively. Based on the closing price of 2.04yuan on October 30, the corresponding PE is 23.6x, 12.1x and 8.1x respectively. As an important iron and steel enterprise in central China, the company is expected to benefit from the improvement of urbanization rate in the future, and the company's performance shows a trend of accelerated improvement. At present, PB is only 0.6 times. Low valuation, with greater flexibility, for the first time to give the company "overweight" investment rating.
Risk tips: (1) downstream demand is lower than expected; (2) the company's project progress is not as expected.