This report is read as follows:
Low profits in the iron and steel industry suppressed the price of graphite electrodes, and the company's performance in the first half of 2023 was lower than expected. With the support of the real estate policy, we expect the demand for steel to improve, the price of graphite electrodes to bottom and the company's performance to pick up.
Main points of investment:
Maintain the "overweight" rating. Since the second quarter, the profit of the iron and steel industry is weak, the price of graphite electrode is low, and the company's performance in the first half of the year is lower than expected. The company achieved revenue of 2.621 billion in the first half of 2023, down 1.88% from the same period last year, and achieved a net profit of 281 million, down 17.56% from the same period last year. Downgrade the company's 2023-25 EPS forecast of 0.19 won 0.25 won 0.32 yuan (formerly 0.30 won 0.39 won 0.49 yuan), with reference to similar companies, give the company a valuation of 40 times PE in 2023, lower the company's target price to 7.6 yuan (formerly 8.4 yuan), and maintain the "overweight" rating.
Graphite electrode prices are under pressure, demand may usher in an upward trend. Graphite electrode is mainly used for electric furnace steelmaking. In the first half of 23 years, the profit of China's iron and steel industry was low, the demand pressure of graphite electrode was high, and the price was under pressure. According to wind data, the average price of 550mm high-power graphite electrodes in the first half of 2023 was 21497 yuan / ton, down 4.07% from the same period last year. At present, there are many supporting policies in China's real estate industry, we believe that the drag of real estate on steel demand is gradually declining, and the demand for graphite electrodes will rise.
The business of special graphite has developed steadily. Chengdu carbon Materials, a subsidiary, has successfully broken the monopoly of foreign isostatic graphite, and its product performance parameters and quality are comparable to those of overseas giants. With the recovery of China's photovoltaic industry, the isostatic pressing graphite market continues to be in a state of tight supply, and the isostatic pressing graphite plate supports the company's performance. In addition, the company's nuclear graphite, carbon and carbon composites are advancing steadily, and the business of special graphite is developing steadily.
Buybacks show confidence. The company announced on August 29, 2023 that it will buy back no less than 250 million yuan and no more than 350 million yuan of company shares with its own funds and the price of no more than 9.1 yuan per share. The share buyback is intended to be used to implement the employee stock ownership plan or / and equity incentive plan. We believe that this repurchase demonstrates the company's confidence in its own development and is conducive to enhancing the cohesion of the company.
Risk hint: new production capacity is not as expected, and real estate demand has fallen sharply.