Main points of investment
Chongqing Iron and Steel: southwest plate leader, integrated into Baowu. Chongqing Iron and Steel is a large-scale iron and steel enterprise with a history of one hundred years, which is mainly engaged in the production, processing and sale of plate, bar, billet and thin strip. In 2020, the company achieved steel production of 7.12 million tons, an increase of 5.83% over the same period last year, of which plate accounted for more than 88%. Since the company joined Baowu Group in September 2020, its management has improved significantly.
Joining Baowu Group, the management has improved significantly. Baowu Group participated in the bankruptcy reorganization of the company in 2017, and became the actual controller of the company in September 2020. It has been stationed in the daily management of the company. It has adopted five major measures to improve the company's production management level, and the effect of reducing costs and increasing income is obvious. Steel output in 2020 increased by 5.83% compared with the same period last year. The company enjoys the synergy advantage of Baowu Group and improves the financing environment. The company's expense rate fell to 3.34% in 2020, and revenue growth and profitability were better than before bankruptcy.
Regional plate leader, benefit from the manufacturing cycle upward. The manufacturing industry is directly downstream of the plate, and its demeanor has gradually increased and surpassed the long wood in the second half of 2020. In 2020, the domestic hot rolling output was only 0.41% compared with the same period last year, with slow growth. After eliminating the eliminated capacity, the overall capacity utilization rate of the plate was as high as 90%. Manufacturing inventories have entered a rising cycle, and the decline in financing rates has led to a rebound in manufacturing investment at the bottom.
Under the joint action of policy and cyclical factors, downstream automobile, home appliances, construction machinery, shipbuilding and other industries are booming, driving plate demand. As a plate giant in southwest China, the company has greatly benefited from the recovery of manufacturing industry with high plate proportion (88%) and good quality.
Chongqing Iron and Steel: increasing production by 40% brings performance growth flexibility. The company's four blast furnaces are all at full load after more than 9 months of revamping. The average daily hot metal output of the three major blast furnaces is more than 7000 tons, and we expect steel production to increase by 40% in 2021. The company makes full use of Chongqing terminal logistics advantages, thanks to the good demand in the region, we expect the new production will be effectively digested. From January to February in 2021, the growth rate of fixed investment in southwest China led the country; in 2021, the total investment in Chongqing increased by 2.9% compared with the same period last year.
Profit forecast and investment rating: we estimate that the company's revenue in 2023 will be RMB 370,000,000, with a year-on-year growth rate of 51%, respectively, and the net profit of home will be RMB 48pm 55 / 6 billion, with a year-on-year growth ratio of 651% PE 14% 10% and a corresponding PE of 5.4max 4.7max 4.3x, which is lower than the valuation of comparable companies. Considering that the company will gradually promote cost reduction and efficiency in 2021, downstream demand will recover to protect steel prices, and output is expected to increase by more than 40%, so for the first time it covers and gives the company a "buy" rating.
Risk hint: downstream demand picked up less than expected; raw material iron ore rose faster than expected; the company's return to production fell short of expectations.