The performance is in line with our expectations and is expected to take off relying on major shareholders to take advantage of the opportunity.

On April 1, the company released its annual report: revenue / return net profit in 2020 was 42.2 million yuan, 8.1% of which was 8.2% of the same period last year. The net profit of returning home is in line with our expectations (28 million yuan). Of this total, Q4 income / return net profit is 1.02 billion yuan, compared with the same period last year, which is + 16.2%, 5.4%, and 93.8%, respectively, compared with the previous year. We believe that if the company is controlled by Baowu Group, there is more room for improvement in its internal refractory share, which is expected to bring a continuous increase in market share and profit margin improvement. We maintain the 21-22 year forecast, introduce 23-year forecast, and estimate 2021-23 EPS0.22/0.36/0.46 yuan. Comparable to the company's 21-year Wind consensus expected average value of 0.42 xPEG, the company is 0.8x, considering that the company's growth is better, so give a certain premium, given 21-year 1.0xPEG, the target price of 12.76 yuan (the previous value of 10.52 yuan), maintain the "overweight" rating.

The production and sales of refractory materials are booming, and the price of steel refractories has dragged down the gross profit margin of 521 million tons of refractories in the past 20 years, which is + 22.1% and 22.1% respectively over the same period last year. The unit selling price / gross profit is 8100 gamma 1278 yuan / ton, respectively, compared with the same caliber. 15.9% (considering freight under the same caliber). Among them, the sales of refractory materials for iron and steel were 350000 tons, + 32% of the same period last year. The annual income of steel / cement / glass refractories is 17% compared with the same period last year, and the price per ton is-17%, 0.4%, 5%, respectively. We believe that the cost end of steel enterprises was affected by the increase in iron ore prices last year. Profit margins have been significantly squeezed. Because refractory materials have lower bargaining power to the downstream, the company is under pressure on the price of refractory materials in the downstream profit downward stage, and the trend of price-for-volume exchange of steel refractories as a whole is obvious. 20-year overall gross profit margin of 15.8%, the same caliber year-on-year-0.8pct.

The expense rate decreased significantly during the 20-year period, and the inventory reduction and thickening of operating cash flow during the 20-year period was 12.7%, year-on-year-1.0pct (taking into account the same caliber of freight). Among them, the sales / management / R & D / financial expense rate is + 0.4 qqr compared with the same period last year, and the decrease in financial expense rate is due to the decrease in financing costs in the current period. The 20-year net return rate was 0.66%, unchanged from the same period last year, mainly due to proper cost control under the pressure of gross profit margin. At the end of the year, the asset-liability ratio was 70.8%, compared with the same period last year-2.4pct. The 20-year income-to-cash ratio and payment-to-cash ratio were 63.8% and 48.6%, respectively, compared with the same period last year. The ratio of items receivable to income / the ratio of items payable to costs was + 0.3pm 0.5 pct, respectively, compared with the same period last year. The cash retention capacity declined slightly, but the operating net cash flow in the same period was 290 million yuan, which was + 120 million yuan / + 74.1% compared with the same period last year, mainly due to a significant decline in inventory.

Baowu Holdings is about to rely on the advantage of major shareholders to rapidly increase its share. In August 20, the company issued a preliminary plan for asset restructuring and supporting fund-raising, which was accepted by the Securities Regulatory Commission on April 1. If it is successfully implemented, the company's controlling shareholder will be changed from China Building Materials to Baowu Group. Baowu Group has a large demand for steel refractory products, and the integration of the steel industry under the background of carbon neutralization is expected to accelerate. Baowu Group may continue to promote its merger and reorganization, which is expected to lead to a continued increase in its crude steel production. The follow-up company has a large improvement space in its internal refractory products share, while relying on the background of central enterprises for external integration is also worth looking forward to, the company steel refractory business development is expected to accelerate, market share is expected to accelerate.

Risk hint: the prosperity of the iron and steel industry is declining, and the risk of failure of asset restructuring events.