Introduction to this report:
The company's performance for the first quarter of '21 was in line with expectations, the company's profitability rose steadily, and the high percentage of dividends in 2020 highlighted the company's investment value. We believe that the company's low-cost expansion strategy will continue to advance, and the company's growth will cross the cycle.
Key points of investment:
Maintain the “increase in holdings” rating. The company achieved operating income of 4,042 billion yuan in the first quarter of 2021, an increase of 26.95% over the previous year, and achieved net profit of 553 million yuan, an increase of 103.7% over the previous year. The company's performance was in line with expectations.
Considering the limited supply of steel and strong downstream demand, the company's 2021-22 EPS forecast was raised to 1.30/1.33 yuan (previously 1.12/1.15), and the 2023 EPS forecast for the new company was 1.34 yuan. Referring to similar companies, the company was given a 10-fold PE valuation in 2021, and the company's target price was raised to 13 yuan (originally 8.96 yuan) to maintain the “increase in holdings” rating.
Profits are rising steadily, and high dividends highlight investment value. The company sold 890,000 tons of steel in the first quarter of '21, with an average sales price of 4,331 yuan/ton. The gross profit per ton of steel was 973 yuan/ton, corresponding to a net profit of 555 yuan/ton per ton of steel. The net profit of one ton of steel rose 17 yuan/ton from the fourth quarter of '20, and the company's profit rose steadily. It announced a dividend of 1.1 yuan per share, with a total cash dividend of 2,371 million yuan, reaching 111% of net profit attributable to the mother in 20 years. The high percentage of dividends highlighted the company's investment value.
Operating cash flow has increased, and financial expenses have been greatly optimized. The company's net operating cash flow in 2020 was $3.74 billion, up 115.59% from 2019. In 2020 and the first quarter of '21, the company's financial expenses per ton of steel were -33 and -61 yuan/ton respectively. Benefiting from the optimization of the company's debt structure, the company's financial expenses were further reduced. The company has excellent management capabilities, and expenses will remain low.
The company crosses the cycle through a low-cost expansion strategy. In the context of carbon neutrality, the growth logic of an industry or company has switched to the endogenous growth of individual “fine management to reduce costs”. The company adopts a unique low-cost expansion strategy and achieves continuous output management through epitaxial mergers and acquisitions to achieve capacity expansion and value creation. We believe that the company's production capacity and performance will fluctuate.
Risk warning: sharp macroeconomic decline; unpredictable safety incidents.