\u3000\u3000 Shandong Donghong Pipe Industry Co.Ltd(603856) (603856)
The provision for impairment is sufficient and the risk is revitalized after release
The company released the performance forecast for 21 years. The annual revenue was 2.23 billion yuan, a year-on-year decrease of 7%, the net profit attributable to the parent was 125 million yuan, a year-on-year decrease of 61%, and the net profit not attributable to the parent was 116 million yuan, a year-on-year decrease of 62%. It is estimated that the revenue of Q1-Q4 in a single quarter is 398 / 7.25 / 5.15 / 587 million yuan, yoy + 27% / - 1% / - 9% / - 25%, and the net profit attributable to the parent company is 0.42/0.81/0.20/ - 18 million yuan. The main reasons why we judge that the profit is lower than expected are: 1) the price of main raw materials polyethylene and steel wire Q4 remains high, and the company's gross profit margin continues to be under pressure. We expect that the gross profit margin of Q4 is close to that of Q3, which is 16%; 2) The company terminated the issuance of convertible bonds and converted to self raised funds to build two major projects: "new anti-corrosion steel pipe project with an annual output of 128000 tons" and "high-performance and new composite plastic pipe project with an annual output of 64000 tons", resulting in a significant increase in financial expenses and further pressure on net profit; 3) The increase in the provision for bad debts of accounts receivable leads to the decrease of the company's net profit. We estimate that the impairment of Q4 may reach 40 million yuan (8.5 million yuan in the same period last year), and the annual impairment may exceed 60 million yuan. Generally speaking, we believe that the pressure on the company's net profit is mostly short-term. With the smooth operation of the two major projects and the ramp up of production capacity, the company's operating performance will usher in rapid growth.
The 14th five year plan promotes the pipeline demand of the project and holds the large order of the second phase of the South-to-North Water Transfer Project
On the demand side, the "14th five year plan" is expected to drive the demand for pipelines such as gas, new and reconstructed sewage pipe networks and urban-rural water supply integration. At the same time, national key projects such as the central and Western lines of the South-to-North Water Transfer Project will further stimulate the demand for high value-added pipelines. In 2021, the company won the bid for the procurement project of PCCP pipe, ductile iron pipe, penstock pipe and pipe fittings of the second phase of Han Ji Wei River Diversion Project, with a total amount of 820 million yuan. It is expected to release its performance in 22-23 years. The pipeline demand is all plastic coated steel pipes, with a maximum diameter of 3.4m, which can partially digest the new production capacity of plastic coated steel pipes. The second phase of the project from Han River to Wei River belongs to Shaanxi South-to-North Water Transfer Project. The bid winning amount is large, which shows the strength of the company's products and products, and is expected to help obtain more follow-up orders.
Investment suggestions: 1) short term cost relief: in 21 years, q1-3 company's main raw materials increased significantly and some products reduced prices, resulting in a large decline in gross profit margin. At the same time, according to wind data, the prices of steel pipe and polyethylene reached the top position in recent five years in Q4 last year. Therefore, we expect that the cost pressure caused by raw materials may be relieved in 2022. The company's business is mainly related to infrastructure, industry and mining, and is basically not affected by real estate policies. The demand for pipelines under the main tone of steady growth supports the company's business scale.
2) release of new capacity scale in China: in 21 years, the company increased the annual production capacity of 128000 tons of new anti-corrosion steel pipes and 64000 tons of high-performance and new composite plastic pipes, and the overall production capacity increased by more than 80% compared with the end of 20fy. With the market expansion of "region + field" of the company, the improvement of capacity utilization is expected to accelerate the release of profits.
3) looking at the pipeline demand of the "14th five year plan" project in the long run: in 2021, the investment in water conservancy construction was 757.6 billion yuan, and the construction of national large-scale strategic projects was carried out in an orderly manner. It is expected that the market demand of the engineering pipeline industry will continue to grow steadily in a long period of time, and the product differentiation of the company is expected to continue to benefit. We lowered the company's profit forecast for 21 years according to last year's performance. It is estimated that the net profit attributable to the parent company in 21-23 years will be RMB 125 / 401 / 515 million (the previous value was RMB 198 / 4.0 / 510 million), corresponding to pe33 / 10 / 8 times, maintaining the "buy" rating.
Risk warning: the price of raw materials has risen sharply, the new capacity cannot be digested in time, macro policy risks and performance forecast are the preliminary calculation results, and the final calculation results are subject to the annual report
