Chongqing Iron and Steel released its 2019 three-quarter report, and net profit fell 51% year on year. From January to September 2019, the company achieved operating income of 46.8 billion yuan, up 2.7% year on year; realized net profit of 7.2 million yuan, down 51.4% year on year; net operating cash flow - 906 million yuan; ROE was 3.82%, ROIC was 4.26%; and the balance ratio was 28.19%, down 3 percentage points from the beginning of the year, which is at a low level.
The average steel sales price fell 4.4% year on year, and gross margin fell 8.7 pct. Since 2019, market steel prices have declined, the cost of raw materials such as iron ore has risen, and the profit level of the steel industry has narrowed. From January to September 2019, the company's average steel sales price was 3,489 yuan/ton, down 4.4% year on year. Among them, plate prices fell more than long materials. The average prices of medium and heavy plates and hot plates fell 5.7% and 5.6% respectively; the average prices of bars and wires fell 0.9% and 1.1% respectively; the company's gross profit margin was 8.4%, a significant year-on-year decrease of 8.7 pct.
Steel production increased 2.7% year on year, and the share of long materials increased. From January to September 2019, the company achieved steel production of 4.675,400 tons, an increase of 2.7% over the previous year, and production efficiency increased. The company increased the proportion of long materials. Bar and wire production increased 13.4% and 16% year on year, respectively, while hot rolled production decreased 7.2% year on year. The company closely grasped market demand and price changes, and adjusted the product structure in a flexible manner.
Cost reduction was vigorously promoted, and expenses dropped significantly during the period. From January to September 2019, the company vigorously promoted cost reduction efforts and insisted on the “optimal cost of iron iron” as the guide. Various types of consumption were significantly reduced, and various expenses were effectively controlled. In January-September, the company's expenses for the period from January to September were 6.3 billion yuan, a year-on-year decrease of 110 million yuan.
2019Q3's profit declined significantly in a single quarter. 2019Q3's quarterly revenue was 5.801 billion yuan, down 8.65% year on year, down 6.1% month on month; net profit from quarter to quarter was 104 million yuan, down 85.5% year on year and 77.6% month on month; gross profit margin for a single quarter was 5.36%, down 14 pct year on year, down 7.9 pct from month on month. 2019Q3 was a period of concentrated rise in iron ore costs, and the company's steel profit declined significantly.
Maintain the “increase in holdings” ratings for the company's A and H shares. We maintain the company's profit forecast. We expect the company's EPS for 2019-2021 to be 0.14 yuan, 0.11 yuan, and 0.10 yuan, respectively. Production and operation have been on the right track since the company was restructured, and there is still room for future growth in steel production; the company continues to reduce costs and increase efficiency to support profits, and is also expected to strengthen cooperation with Baowu Group in the future to enhance overall competitiveness. We maintain the company's A share “increase” rating and maintain the company's H share “increase” rating.
Risk warning: corporate governance risk, steel price fluctuation risk, etc.