Introduction to this report:
The company's performance for the first three quarters of 2022 fell short of expectations. The company insists on reducing costs and increasing efficiency and optimizing the product structure. As its newly built high-end electrical steel production capacity is gradually released, its profitability is expected to gradually increase.
Key points of investment:
Maintain an “increase in holdings” rating. Revenue for the first three quarters of 2022 was 91.7 billion yuan, down 8% year on year; Guimu's net profit was 1.78 billion yuan, down 69% year on year, and performance fell short of expectations. Considering the pressure on both sides of costs and revenue, the EPS forecast for 22-24 was lowered to 0.25/0.34/0.47 yuan (originally 0.56/0.63/0.69 yuan), corresponding to net profit of 19.7/2,66/37 billion yuan. Considering sector valuation adjustments, reference was made to similar companies that gave 0.8 times PB valuation in '22, and lowered the target price to 4.45 yuan (originally 5.6 yuan) to maintain the “increase in holdings” rating.
The product structure continues to be optimized, and profitability is expected to increase. The proportion of the company's high-end electrical steel in 19-21 was 34%, 40%, and 48% respectively. In the first three quarters of '22, the company's total electrical steel production was 1.06 million tons, of which the proportion of high-end products rose further to 65%. The company's electrical steel product structure continues to be optimized, which helps improve the company's profitability.
Electrical steel production capacity continues to expand, and the share of high-end products will continue to increase. At the end of June '22, the company's newly built electrical steel production line for new energy vehicles was successfully tested, adding 350,000 tons/year of high-grade unoriented electrical steel; it is expected that in the first quarter of '23, the company's high-performance oriented electrical steel production line will be put into operation, adding 90,000 tons/year of thin-specification electrical steel production capacity. As new high-end production capacity is gradually put into operation and released, the company's share of high-end electrical steel will continue to increase. It is expected that by 2025, the share of high-end electrical steel will rise to more than 70%, and the electric steel business is expected to contribute more to the company's performance growth in the future.
The proposed purchase of the mining company's Qiuyangyuan assets will help enhance its overall strength. On October 28, '22, the company announced that the branch company Qiangang Steel Company plans to purchase ball burning assets held by Shougang Group Mining Company with 1.3 billion dollars in cash. After the transaction is completed, it will effectively reduce the company's related transactions with Shougang Group, and the company's steel production process will be further improved, which will help improve management efficiency and enhance overall profitability.
Risk warning: Downstream demand has been drastically reduced, and the release of new electrical steel production capacity fell short of expectations.