Event
The company released its 2021 semi-annual report on August 27, with operating income of 14.659 billion yuan in the first half of the year, an increase of 49.52% over the same period last year, and a net profit of 1.273 billion yuan, an increase of 1740.59% over the same period last year.
Comment
The volume and price of steel products rose in the first half of the year. The company produced 3.4588 million tons of steel in the first half of the year, up 31.32 percent over the same period last year; the output of building materials was 1.3595 million tons, up 19.63 percent over the same period last year; the average selling price was 4216.04 yuan per ton, up 26.19 percent; and the output of plates was 1.8268 million tons, up 16.45 percent over the same period last year, and the average selling price was 4287.93 yuan per ton, up 23.53 percent. The company's profitability improved, with a comprehensive gross margin of 18.41% in the first half, an increase of 10.57pcts over the same period last year.
Infrastructure investment in Xinjiang continues to develop, and regional leaders enjoy a high premium. Xinjiang, as a key area for the development of the western region, has maintained rapid growth in infrastructure construction. From January to July 2021, the total investment in fixed assets in Xinjiang increased by more than 20% compared with the same period last year, much higher than the national average growth rate. The company has an annual production capacity of 7 million tons of iron, 7.3 million tons of steel and 7.7 million tons of materials, with a market share of 35.5% for building materials and 81% for plates in Xinjiang in the first half of the year. Xinjiang lies in the inland, which increases the steel transportation cost of other provinces, the local steel enterprises have the advantage of transportation cost, and the market is closed.
The leader in Xinjiang is expected to benefit from the accelerated integration of the iron and steel industry. In the 2025 plan of the iron and steel industry, it is clearly put forward that the specific requirements for industry concentration are "40% of CR5 and 60% of CR10". A number of steel companies have planned or implemented mergers, such as the merger of Angang Benxi Iron and Steel, Baowu's acquisition of TISCO and Chongqing Iron and Steel Co., Ltd. In March 2020, Baosteel Group Xinjiang Bayi Iron and Steel Co., Ltd., China Baowu Iron and Steel Group Co., Ltd., and Huabao Investment Co., Ltd. jointly invested 1 billion yuan to establish Xinjiang Tianshan Iron and Steel United Co., Ltd. the company is expected to further increase the market share and production capacity in the general trend of iron and steel production capacity integration in Xinjiang.
Profit Forecast & Investment suggestion
Based on the fact that the company's steel output in the first half of the year increased by 31.32% over the same period last year, and the price rebounded somewhat, we raised our profit forecasts for 2021 and 2022 by 333% and 341% respectively. It is estimated that the company's net profit from 2021 to 2023 will be 2.421 billion yuan, 2.551 billion yuan and 2.785 billion yuan respectively, and its EPS will be 1.58,1.66,1.82 yuan respectively, and the corresponding PE will be 5.03,4.78 and 4.38 times respectively. Maintain the "overweight" rating.
Risk hint
The continuous risk of infrastructure investment policy in Xinjiang; the release of steel replacement capacity is higher than expected; steel demand is lower than expected.