Event
On August 14, the company announced its semi-annual report for 2020: the company realized 392 million yuan in net profit in the first half of the year, down 44.68% from the same period last year; in the second quarter, it realized 250 million yuan in net profit, up 76.06% from the previous quarter.
At the same time, the company plans to distribute profits for the first half of 2020: 1.20 yuan for every 10 shares, with a total dividend of 405 million yuan, calculated according to the closing price on August 14, with a dividend yield of 1.55%.
The double squeeze of falling steel prices and rising mineral prices led to a decline in the company's profits in the first half of this year. The company's hot coil production and sales volume were 2.1701 million tons and 2.2101 million tons respectively, up 3.41% and 2.47% respectively from the same period last year. The company accumulated 541400 tons of coke in the first half of the year, and calculated according to the coke ratio of 0.35, the coke self-sufficiency rate reached 73%. On the whole, the production rhythm of the company is relatively stable. However, the output of the industry is growing, steel prices are lower, the export situation is grim, and iron ore prices continue to rise. By the end of June, China's steel composite price index was 102.69 points, down 3.4% from the beginning of the year, while China's iron ore price index was 364.36 points, an increase of 9.40% over the beginning of the period. Affected by the double squeeze of falling steel prices and rising imported iron ore prices, there has been a big decline in the economic benefits of the whole industry. At the same time, due to the impact of the COVID-19 epidemic at the beginning of the year on the downstream demand rhythm, the company as a whole is facing the adverse effects caused by the double squeeze of falling steel prices and rising mineral prices. In the first half of 2020, the company achieved a net profit of 392 million yuan, down 44.68% from the same period last year.
Focus on the development of digital economy industry IDC business advances steadily
The company is positioned to develop the digital economy. On the one hand, it sells 97.9525% equity of Zhejiang Fuchun Ziguang Environmental Protection Co., Ltd., a holding subsidiary of the company, to Zhejiang Fida Environmental Protection Technology Co., Ltd., and strategically abandons the environmental protection industry. On the other hand, continue to promote IDC business: first, continue to promote the construction of the first phase of Hangzhou Iron and Steel Cloud Computing data Center project, which is expected to be completed and put into production in August 2020. Second, the company and Zhejiang Tmall signed a cooperation framework agreement on the joint construction of Zhejiang cloud computing data center project in Hangzhou. Zhejiang Cloud Computing data Center Co., Ltd., a wholly-owned subsidiary of the company, invested 3.979 billion in two batches of construction, of which the first phase of the project is expected to exclude 2 billion yuan of server investment, and the construction period is about 24 months. The second phase of the project is expected to include 1.983 billion yuan of server investment. With the smooth progress of IDC business, we believe that the company's second main business will usher in development opportunities, which may bring new profit growth points for the company in the future.
Investment suggestion
Due to the impact of the epidemic, the company's first-half results were slightly lower than expected, so we adjusted the company's 20-22 net return profit from 9.85 to 972 million, corresponding to an EPS of 0.25, 0.27 and 0.29, respectively, maintaining 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.