The 2020 net profit fell 32.42% compared with the same period last year, downgraded to the "overweight" rating. On April 27, the company released its annual report, with revenue of 3.836 billion yuan in 20 years, + 18.99% compared with the same period last year, and net profit of 63 million yuan, down 32.42% from the same period last year. Lower than we expected (98 million in 20 years).

The decline in performance in the past 20 years is mainly due to the decline in the company's product processing fees and the increase in costs caused by the expansion of production capacity, while the economic benefits of the new project have not been fully reflected. We estimate that the company's EPS for 21-23 will be 0.44xt 0.49xt 0.59 (the previous value is 0.68pm 1.00par-yuan), downgraded to overweight rating.

Over the past 20 years, the decline in processing fees and the increase in operating costs affected the company's performance during the reporting period, the company's strip production and sales increased steadily, achieving production and sales of 8.33 / 82400 tons respectively, an increase of 15.10% over the same period last year. However, due to the macroeconomic situation and the deterioration of market competition in the copper processing industry, the company's processing fees have declined. According to the financial report, the company's 20-year main products copper plate and strip processing fees / ton gross profit are respectively year-on-year-13.2/-27.6pct to 0.420 million yuan / ton. In addition, part of the company's fund-raising projects have been put into production, and labor, depreciation and other costs have increased over the previous year, while the economic benefits of the new projects have not yet been fully reflected in the current period, affecting the company's performance. During the reporting period, the company's operating cost was 3.667 billion yuan, an increase of 20.8% over the same period last year, and the gross profit margin on sales / net profit margin on sales were 1.63% higher than that of the same period last year-1.8/-1.3pct to 4.40. Lower processing fees and higher costs offset profits from rising sales.

The new plate and strip production capacity continues to increase, and the soaking plate and raising investment copper foil project slows down during the reporting period, the company's wide copper strip production capacity has been completed and put into production, and the company's copper strip and foil product production capacity has reached 100,000 tons per year. According to the announcement of the company's 21Q1 main operating data, 21Q1 achieved 236,000tons of copper strip production and sales, an increase of 60.42% and 63.67% over the same period last year, and the company's new production capacity is gradually being released. However, due to the increasingly fierce market competition, the Zhongyuan technology soaking plate project of the subsidiary has not been promoted for the time being; and in the ultra-thin copper foil part of the investment project during the reporting period, the progress of production capacity installation and commissioning slowed down due to the overseas epidemic affecting the import of spare parts, and the project construction progress was not as expected. In the past 21 years, the company will continue to actively follow up the progress of equipment parts import, installation and commissioning, and realize the full production and production capacity release of the fund-raising project as soon as possible. The company expects that the ultra-thin copper foil part of the fundraising project will be officially put into production in the first half of 2021.

The copper foil project still needs to be promoted, downgraded to "overweight" rating.

In view of the fact that the construction progress of the ultra-thin copper foil part of the company's fund-raising project has slowed down due to the impact of the epidemic situation, and as a copper processing enterprise, the profit mainly comes from processing fees; with the increasingly fierce competition in the traditional plate and strip market, it is expected that the processing fees will be weak in 21 years. We reduce the company's processing fees and copper foil production and marketing assumptions, and expect the company's net profit to return to its parent in 21-23 to 1.07 pounds per million (the previous value is 166 pounds-244 million dollars). Comparable company Wind unanimously expected PE (21E) average 25X, in view of the uncertainty when the company's soaking plate project will reach production, and it will take time for Calendering copper foil to be completed and put into production to release capacity, we give a certain valuation discount to 21-year 21.25X PE,21 annual EPS of 0.44 yuan, corresponding to the target price of 9.35 yuan (previous value 12.00 yuan), downgraded to "overweight" rating.

Risk tips: copper strip and foil demand and product yield are not as expected; the construction of new materials is not as expected.