Net profit of Fumo in '22 was +58.7% year-on-year, maintaining an “increase in holdings” of rating companies that achieved operating income of 1.37 billion yuan (yoy -24.7%) in '22 and net profit of 203 million yuan (yoy +58.7%), consistent with the previous performance forecast (2023-003) of 17—210 million yuan; of this, 22Q4 net profit was 0.04 million yuan (year-on-year reversal of loss, qoq -90.0%). Considering that iron ore prices have risen again after falling back from a 22-year high, we expect the company's EPS to be 0.44/0.46/0.49 yuan respectively in 23-25 (previous value of 0.65/0.66/-yuan), and the average PB (2023E) of comparable companies is 1.5X, giving the company 1.5 times PB valuation in 23. It is estimated that the company's BPS in '23 will be 5.54 yuan, corresponding target price of 8.31 yuan (previous value 8.41 yuan), maintaining the “increase in holdings” rating.
The price of iron powder in '22 was -20.5% compared to the same period, and the planned iron powder production in '23 was not less than 1 million tons. According to the company's annual report, the company produced 1,0515 tons of iron powder in '22 (yoy -0.53%), and pellet production was 191,600 tons (YOY -35.7%). Iron ore prices rose and fell in '22. The gross margin of the company's ferrous metal sector was 24.1% (yoy-9.77pct); in '22, the average price of iron ore powder (yoy -20.5%), the unit cost was 722 yuan/ton (yoy -4.41%), the unit gross profit was 220 yuan/ton (yoy -48.8%), the average price of pellet ore was 1,329 yuan/ton (yoy -4.9%), unit cost was 1,091 yuan/ton (yoy -0.0%), unit gross profit was 173 yuan/ton (yoy -0.0%) y-27.4 %). Furthermore, the company plans to produce no less than 1 million tons of iron powder in '23, which is basically equivalent to the level in '22.
On a comparable scale, the net sales margin was -1.56 pct year-on-year, and the dividend rate was 14.7%. According to the company's annual report, the company's gross sales margin in '22 was 21.1% (yoy-9.29pct), and the period expense ratio was 9.83% (yoy-13.9pct), mainly due to the inclusion of non-co-ordinated expenses and dismissal benefits of 216 million yuan in management expenses in '21. After excluding the influence of special factors, the cost rate for the period was -1.99 pct year-on-year. The company's net sales interest rate was 15.1% (yoy+7.34pct). Excluding the influence of management expenses in '21, the net sales margin was -1.56 pct year-on-year. Furthermore, in '22, the company plans to pay 0.5 yuan for every 10 shares, all in cash, with a dividend rate of 14.7% and a dividend rate of 0.68% (based on the closing price of 3.24).
Steel and iron ore are typical domestic demand commodities, and iron ore prices may remain high in '23, and steel and iron ore are typical domestic demand commodities. With the launch of the “three arrows” of China's real estate and the recovery of the Chinese economy after the optimization of epidemic prevention and control policies, we expect the growth rate of China's crude steel consumption to correct year-on-year in '23. However, iron ore is the most rigid link in supply. Capital expenditure from the four major mines continues to be sluggish. Combined with the Russian-Ukrainian conflict, the Russian-Ukrainian conflict led to a reduction in supply between Russia and Ukraine, which caused a sharp drop in iron ore supply in '22. At the same time, factors such as the epidemic led to a decline in scrap recycling, further increasing demand for iron ore. Iron ore prices have rebounded sharply since November '22. Looking later, we expect a recovery in scrap supply, and production regulation policies in the steel industry may ease the tight pattern of iron ore supply, but iron ore supply is still rigid. Iron ore prices may remain high in '23, and the company may benefit from rising iron ore prices.
Risk warning: Macroeconomics fell short of expectations, downstream demand fell short of expectations, steel production regulation policies changed.