Event: the company released the 2020 Annual report and 2021Q1 Quarterly report, with operating income of 16.601 billion yuan (+ 7.88%) and 4.042 billion yuan (+ 26.95%) respectively, and net profit of 2.14 billion yuan (+ 25.08%) and 553 million yuan (+ 103.70%) respectively.
Production capacity is released in a cyclical manner, and performance is structurally expanded. The company's production and marketing scale expanded structurally in 2020. the company achieved sales of 2.683 million tons of rebar, excellent wire, spring flat steel and automobile leaf spring, accounting for 2.683 million tons (22.85%), 878000 tons (2.90%), 687000 tons (15.5%) and 188000 tons (4.5%). The annual sales of iron concentrate powder decreased to 702000 tons (- 17.04%) due to the epidemic and changes in mining geological conditions. Considering the continued growth of global and domestic steel consumption in 2021 (the World Iron and Steel Association forecasts global steel demand + 5.8%, the company expects domestic crude steel production + 5%), superimposed production restrictions in Hebei and other places lead to tight steel market supply, the company's product sales will achieve a simultaneous increase in volume and price, and the business scale is expected to continue to grow.
The management advantage builds a low-cost moat, and the company's profit per ton is 132% higher than the industry average. The company promotes profit-centered management reform, insists on reducing costs and increasing efficiency, and improves the internal incentive mechanism. Thanks to the cost competitive advantage brought by restructuring management, the company's profitability and return on net assets leapt to the forefront of the industry. In 2020, the company's ROE (weighted), ROA and ROIC rebounded to 28.8%, 16.2% and 22.8% respectively, of which ROE has been above 20% for five consecutive years (and the asset-liability ratio is only 35%), highlighting the company's extremely high investment value and weak cyclical performance. In addition, the level of fine management of the company continued to improve in 2020. Against the background of high year-on-year growth in production and sales and mineral coke prices, manufacturing expenses and depreciation fell by 16.7% and 16.4% respectively, while raw material and energy costs rose only 12.9% and 6.0% respectively. Benefiting from the increase in sales volume and the improvement of management efficiency, the company achieved a total profit of 3.073 billion yuan in 2020 (+ 31.08%, which was actually the same as the same period last year after excluding the influence of management fees such as equity incentives and red packet incentives), and the estimated profit per ton was about 646 yuan. it is 367 yuan / ton (+ 132%) higher than the average profit per ton of key steel enterprises in 2020 (statistical output of 745 million tons of steel). It shows that the company has a very high margin of operational safety relative to the industry.
The company has a strong growth in size, and the historical annualized return of the stock price is as high as 20%. At present, the steel capacity concentration in China (CR10 is about 40%) is significantly lower than that in developed countries (Japanese Steel CR4 > 85%) and domestic cement industry (CR10 > 55%), and the increase in capacity concentration is accelerating. In 2020, the parent company, Fangda Iron and Steel Group, accounted for only 1.86% of the domestic steel market share, indicating that the company's market share in the domestic steel market has much room for improvement. At present, Fangda Iron and Steel Group's iron and steel production units such as Jiangxi Pinggang (12 million tons) and Sichuan Dazhou Iron and Steel (3.5 million tons) are managed by the company, and the relevant group assets may be injected into the listed company after meeting the conditions according to the agreement. at the same time, considering the abundant cash flow brought by the company's high profitability, supplemented by the parent company's rich successful experience in acquisition and integration, the company has a lot of room for growth in the future.
Since the listing, the annualized return on the company's stock price has been as high as 20%. The high return on investment mainly comes from the high profit growth and dividend rate increase brought about by the jump in the company's ROE. In 2020, the company plans to pay a cash dividend of 11 yuan (11.4% at the latest share price) to all shareholders for every 10 shares, with a dividend rate as high as 110.8%.
As the company's management model is replicable and there is still room for low-cost scale expansion, the company is expected to maintain a high return on investment in the future.
Company profit forecast and investment rating: we expect the company to achieve operating income of 22.96 billion yuan, 23.864 billion yuan and 24.576 billion yuan respectively from 2021 to 2023; net profit of 3.091 billion yuan, 3.212 billion yuan and 3.324 billion yuan respectively; EPS of 1.43,1.49 yuan and 1.54 yuan respectively, corresponding to PE of 6.74X, 6.48X and 6.27X respectively, maintaining a "highly recommended" rating.
Risk tips: 1, raw material price risk; 2, macroeconomic risk; 3, enterprise management risk.