Main points of investment
The company is a leading steel enterprise in Northwest China with strong comprehensive strength: the company is a leading iron and steel enterprise in Northwest China, and its products cover two categories of carbon steel and stainless steel. it has complete modern process equipment of carbon steel and stainless steel, such as mining, mineral processing, sintering, coking, ironmaking, steelmaking, hot rolling and cold rolling, with rich product structure. it has strong comprehensive competitiveness in the northwest and even the national iron and steel industry.
The location advantage is unique, and the leading position of the regional market is stable: due to the unique geographical location and market conditions, the settlement price in the northwest market is higher than the national level after the industry removes production capacity on a large scale and eliminates backward production capacity. Under the background of the "Belt and Road Initiative" strategy, the northwest region has ushered in an upsurge of large-scale fixed asset investment, continuously promoting infrastructure construction and effectively driving local steel consumption. The company is deeply rooted in the northwest market and has deep influence in the local market. The price of the company's main products has become the weather vane of the local market price, and the regional leading position is irreplaceable.
Resource-rich, low-cost advantage is obvious: the company is located in a resource-rich area, with rich own iron ore resources and surrounding ore, coal resources, while its own iron ore cost is low, iron ore self-sufficiency rate is also increasing year by year. The surrounding ferroalloy, scrap and other production auxiliary materials are in sufficient supply, at the same time, the electricity cost is very low, the comprehensive production cost ranks in the advanced level of the industry, and the advantage of low cost is obvious.
Many measures can be taken to increase the efficiency, and the performance can be improved continuously: after a large loss in 2015, the company has taken a number of measures to improve the company's efficiency. With the continuous improvement of the prosperity of the industry, the company will timely restore the production capacity of Yugang and invigorate the wing steel assets through billet rolling, which will significantly improve the later performance; at the same time, it will continue to optimize the business structure and increase the proportion of output of high-margin products; various measures have been taken to reduce fees and increase efficiency. In the first half of 2017, the expense rate during the sales period decreased by 1.92% compared with the same period last year, and the total cost decreased by 9.65% compared with the same period last year, with a profit increase of nearly 250 million yuan. Carry out the risk deposit system to fully mobilize the enthusiasm and vitality of cadres and workers. Under the combined effect of these measures and the rebound in steel prices, after a huge loss of 7.38 billion yuan in 2015, the company made a profit of 670 million yuan in 2016, turning losses into profits over the same period last year, and a profit of 350 million yuan in the first half of 2017, a further increase of 21.44 percent over the same period last year.
Profit forecast and investment suggestions: with the influence of environmental protection, production restrictions and other factors, industry supply and demand will still maintain a relatively tight balance, steel prices are expected to maintain the current high level, and the company's profit space is expected to further expand. The company's Yugang base resumes production in September, according to the current industry average capacity utilization level of 80% and Lanzhou rebar (20mm HRB400) average price of 4200 yuan in August, it can bring the company a gross profit of nearly 680 million yuan in the second half of the year (according to the company's bar gross profit rate of 23.32% in the first half of the year), effectively offset the current loss of Yugang base.
At the same time, the company has carried out various measures to reduce costs and increase efficiency, and the company's profit situation is expected to be further improved. We estimate that the company's net profit from 2017 to 2019 will be 930 million yuan, 1.27 billion yuan and 1.51 billion yuan respectively, and the EPS will be 0.15,0.20 yuan and 0.24 yuan respectively.
Risk hint: the implementation effect of environmental protection production restrictions is not as good as expected; steel demand has dropped sharply; interest rates continue to rise.
