Guide to this report:
Guide the company to be deeply involved in the steel industry, continuously enhance its competitiveness, and tap its own potential. The company has already laid out a new production capacity of 10 million tons in Fangchenggang. In the future, the company's performance will gradually be released as production capacity is released.
Summary:
Covered for the first time, giving it an “increase in holdings” rating. The company is an excellent leading steel enterprise in China. We expect the company's EPS to be 0.56/0.73/0.83 yuan respectively in 2020-2022. Referring to similar companies, the company was given a PE valuation of 8 times in '21, corresponding to a value of HK$5.27 per share. It was covered for the first time and was given a “increase in holdings” rating.
We are deeply involved in the steel industry and continue to explore our own potential. The company is deeply involved in the steel industry. In 2019, it upgraded its blast furnace and converter equipment, and replaced automobile transportation with railway transportation. The company's own strength has steadily increased. In addition, the company continues to tap its potential and maintain a good level of gross profit per ton of steel. In 2018-2019, the company's gross profit per ton of steel was 591, 632, and 428 yuan/ton, respectively, and the net profit per ton of steel was 412, 457, and 360 yuan/ton. The company's net profit level per ton of steel far exceeded the industry. The company's cost control level is excellent. In 2018-2019, the company's cost per ton of steel (excluding R&D) was 73, 91, and 90 yuan/ton, which remained low. We believe that the company's operating and management advantages are obvious, and its profitability will steadily increase
Outreach expansion will gradually be implemented, opening up room for the company to grow. In 2019, the company formulated a plan to build a new 10 million ton steel sheet pile project in the Fangchenggang area. The first phase plans to put in production 6.5 million tons and an investment amount of 22 billion yuan. At present, the company has purchased 3.05 million tons of crude steel production capacity, and the company will continue to purchase production capacity to ensure the implementation of the plan. The company currently has a crude steel production capacity of 10 million tons. With the gradual implementation of the company's new production capacity, the company's production capacity will double, and the company has broad room for future growth.
The industry's profit level in '21 may be higher than in 2020. In the context of carbon peaks and carbon neutrality, the Ministry of Industry and Information Technology requires a year-on-year decline in China's steel production in '21. According to our estimates, under the assumption that real estate remains stable, the year-on-year decline in steel production will return the industry to a tight balance between supply and demand, the industry's profit center will rise, and industry profits will grow rapidly year-on-year.
Risk warning: The company's new production capacity fell short of expectations; real estate investment declined sharply.