The performance in 2021 slightly exceeded market expectations
The company announced its 2021 results: revenue of 5.74 billion yuan, year-on-year + 10.0%, and net profit of 660 million yuan, + 23.7%. Of this total, 2H21's revenue was 3.13 billion yuan, + 15.4% compared with the same period last year, and the net profit returned to its mother was about 370 million yuan, + 14.7% compared with the same period last year. The company's performance in 2021 slightly exceeded market expectations.
1) the sales volume of the products is steadily rising. In the past 21 years, the company has achieved foreign sales of die steel / high-speed steel / cutting tools / titanium alloy 16.5% / 2.4 × 10 ~ 4 / 3500 tons, respectively, with a year-on-year sales volume of-9.3%, 6%, 7.4%, 50.5%. 2) the profitability of the product is improved. In 21 years, the unit price of die steel / high-speed steel / cutting tools is 14500 yuan / 41700 yuan / 3.2yuan respectively (compared with the same period last year, + 12.2%, 22.3% and 14.3% respectively). Due to the increase in the proportion of high-end products, the gross profit margins of high-speed steel and cutting tools in 21 years were + 4.4/9.5pct to 32.5% to 32.5% to 28.4% respectively; affected by the cancellation of the export VAT rebate, the gross profit margin of die steel fell slightly to 26.6%; and the company's overall gross profit margin was + 1.2pct to 24.5%. 3) the rate of marketing expenses increased compared with the same period last year. In 21 years, the company's marketing expense rate rose 2.1pct to 3.8% compared with the same period last year, mainly due to the recovery of the company's export sales and an increase in freight and logistics expenses. 4) the quality of assets continues to improve. At the end of 21, the company's asset-liability ratio was year-on-year-4.5pct to 45.1%, and interest-bearing debt ratio was-14.0pct to 46.5%.
Trend of development
Excellent cost transmission capacity and rising export performance reflect the company's significant competitive advantage. 1) looking back to 2021, due to the rise in the price of alloy raw materials, the company issued a total of 12 price increase notices, with an average increase of 12.9% in the unit price of core products. Since the beginning of 2022, the company has raised product prices six times in a row. We believe that the continuous price increase of the company's products reflects the company's excellent cost transfer ability and confirms that it has a strong industry pricing power, and it is expected that the company's product gross profit margin will continue to rise steadily in 22 years. 2) in the face of unfavorable factors such as the increase in sea freight charges and the cancellation of export tax rebates in 21 years, the export amount of the company's core products is still yoy+47.1%, to demonstrate the global competitiveness of the company's products. We have observed that the conflict between Russia and Ukraine has led to a gap between supply and demand of steel in Europe, superimposed cost pressure caused by a sharp rise in energy prices, and the recent significant expansion of steel price differences at home and abroad is expected to further promote the export of the company's core products.
The product structure is steadily optimized and the endogenous growth is expected. The optimization of the company's product structure has progressed steadily. In the past 21 years, the proportion of high-alloy die steel / high-speed steel products is + 7/4pct to 78% and 64% respectively, and the sales volume of powder metallurgy products is from + 388t to 471t. In addition, the company has gradually made efforts in the field of high-end cutting tools, the construction of cemented carbide tools and powder tap production lines has been steadily advanced, and the performance of powder taps and bits has been continuously improved.
We believe that as the company gradually enters the harvest period in the exploration of powder materials and high-end tool market, the gradual release of high value-added products is expected to be an important profit growth point of the company, and the endogenous growth of the company is expected.
Profit forecast and valuation
The current share price corresponds to 22max 23e 8.1 EPS 6.4X Pmax E, while the current stock price remains unchanged at RMB 0.43 for 22max 23e. To maintain the company's outperform industry rating, taking into account the current volatility in the Hong Kong stock market, we lowered our target price by 11.1% to HK $5.6, corresponding to 22max 23e 14.1 pm E, which is 75% upside from the current stock price.
Risk
The price of alloy raw materials fell sharply; the macroeconomic downturn accelerated.
