Event
On April 24, the company released a report for the first quarter of 2020: revenue in the first quarter of 2020 was 5.91 billion yuan, down 9.36 percent from the same period last year; net profit was 142 million yuan, down 67.33 percent from the same period last year; and earnings per share was 0.04 yuan per share, compared with 0.13 yuan per share in the same period last year.
The epidemic led to a significant decline in production and sales in the first quarter.
The company is a shareholding enterprise, engaged in the business carried out by subsidiaries such as Ningbo Iron and Steel, Ziguang Environmental Protection, Renewable Resources, Cloud Computing Company, etc., mainly the iron and steel business engaged in by Ningbo Iron and Steel Co., Ltd., supplemented by some environmental protection business and digital economy business. Affected by the epidemic situation at the beginning of the year, there is a short-term imbalance between supply and demand in the iron and steel industry. Ningbo Iron and Steel's main products are hot-rolled and cold-rolled coil, and the demand of downstream automobile manufacturing, machinery manufacturing and other industries is short-term sluggish. According to the company's announcement, the company's hot coil production and sales in the first quarter were 1.0506 million tons and 1.0847 million tons respectively, down 11.15% and 9.85% from the same period last year. At the same time, the sales price of hot rolls also decreased by 2.61% compared with the same period last year. The above factors led to a year-on-year decline in the company's first-quarter performance.
Iron and steel industry short-term performance pressure focus on the late IDC business progress affected by the epidemic, the company's main steel business profitability may be under short-term pressure. In addition to the main steel industry, the company also actively layout environmental protection business and IDC business. The company completed the acquisition and capital increase of 100% equity in Hangzhou Hangang Cloud Computing data Center Co., Ltd. in October 2019, and will invest in the construction and operation of the first phase of Hangzhou Iron and Steel Cloud Computing data Center Project. The meeting of the standing Committee of the political Bureau of the CPC Central Committee held on March 4 pointed out the need to speed up the construction of new infrastructure such as 5G networks and data centers. With the intensive deployment of "new infrastructure" by the central government, the IDC industry may usher in rapid development in the future, and the second main industry will usher in development opportunities.
Investment suggestion
We believe that the 20-22 return net profit of the company is 9.85, 10.69, 1.19 billion, respectively, and the corresponding EPS is 0.29, 0.32, 0.33 yuan, respectively, with a "buy" rating.
Risk hint: the mismatch between supply and demand in the iron and steel industry leads to a decline in profits in the company's steel business, a lack of IDC progress and unpredictable risks in the company's own operation.