Event summary: On April 11, the company released its 2021 annual report: in 2021, the company achieved revenue of 30.879 billion yuan, an increase of 33.62% over the previous year; net profit of the mother was 1,181 million yuan, an increase of 267.67% over the previous year; after deducting net profit of the non-return mother was 1,083 million yuan, an increase of 323.4% over the previous year. 2021Q4, the company achieved revenue of 5.953 billion yuan, a decrease of 19.99% over the previous month; net profit of the mother was 1,166 million yuan, after deducting the net profit of the non-return mother - 1,269 million yuan, which changed from profit to loss over the previous month.
Comment: Production and sales of the company's main products have risen, and gross margin has remained stable
① Volume: The company's product production and sales increased year-on-year in 2021. The company produced 6.42 million tons of steel in 2021, an increase of 2.65% over the previous year, of which the production of building materials products was 2.25 million tons, an increase of 4.3% over the previous year, and sales volume was 2.26 million tons, an increase of 2.54% over the previous year; the production of plate products was 3.11 million tons, an increase of 3.85% over the previous year, and sales volume was 3.9915 million tons, an increase of 2.63% over the previous year.
② Price: The price of rebar has increased significantly, and the total gross margin has remained stable. The price of iron ore, the main raw material for steel products in 2021, was +49.06% year on year, the price of main coking coal was +80.75% year on year, the price of coke was +50.08%, and the price of scrap was +29.69%. Faced with the sharp rise in raw materials, the company's core focuses on improving the efficiency of production and use, resolutely deepening cost reduction work throughout the process, and maintaining a stable total gross margin under the new accounting standards.
Core future highlights
① The growth rate of fixed asset investment in Xinjiang in 2021 was higher than the national average, and steel demand potential is high. As a key development region in western China, thanks to the policy dividends, stability dividends, and epidemic prevention and control dividends that are being released intensively, the growth rate of fixed asset investment is significantly higher than the national average, and demand potential is high.
② The market share in the country is high, and the advantages of regional leaders are obvious. Xinjiang is located inland, and transportation conditions are poor.
As the largest steel mill in Xinjiang, the company has obvious geographical advantages, and its products have high brand recognition in Xinjiang and northwest China. From January to June 2021, the company's domestic market share for building materials was 35.5%, and the board reached 81%.
③ Equity incentives help the company develop in the long term. The company released the 2021 A-share restricted stock incentive plan and made requirements for the company's return on net assets, profit, and EVA, which is conducive to attracting and retaining outstanding talents, fully mobilizing the enthusiasm of core key employees, and laying a solid foundation for the company's long-term development.
④ Acquire the controlling shareholder subsidiary to achieve optimal resource allocation. On December 21, 2021, the company completed the acquisition of Xinjiang Coking Coal (Group) Co., Ltd. and Xinjiang Bagang Metal Products Co., Ltd., which extended the Bayi Steel industry chain and helped the company maximize the utilization value of resources in the country.
Profit forecasts and investment suggestions: Xinjiang's steel demand potential is high, and the company's regional leadership advantage is obvious. At the same time, the industrial chain layout is deepened, and performance is expected to maintain steady growth. We expect the company's net profit to be 1,404/1641/1,788 billion yuan in that order in 2022-2024, and PE corresponding to the closing price on April 12 will be 8x, 7x, and 6x, covered for the first time, and given a “recommended” rating.
Risk warning: Prices of raw materials have fluctuated greatly, downstream demand has fallen short of expectations, and the impact of the COVID-19 pandemic continues.