\u3000\u30 Shenzhen Quanxinhao Co.Ltd(000007) 08 Citic Pacific Special Steel Group Co.Ltd(000708) )
Performance summary: in 2021, the company achieved steel sales of 14.53 million tons (+ 3.9%), operating revenue of 97.33 billion yuan (+ 27.6%), net profit attributable to the parent company of 7.95 billion yuan (+ 31.8%), corresponding to EPS of 1.58 yuan. In 2021q4, the net profit attributable to the parent company was 1.89 billion yuan, an increase of 0.9% month on month. The dividend ratio is 50.8% and the dividend rate is 4%;
Adjust the industrial layout and counter trend growth, showing the leading nature of weak cycle special steel: in 2021, the raw material price of special steel industry reached a record high and remained high, the scrap index increased by 30.0% on average compared with 2020, and the coke price index in China increased by 51.8% on average compared with 2020. At the same time, the iron and steel industry has also been impacted by factors such as the cancellation of export tax rebate and the sharp rise of sea freight. In this context, the company seized the growth of China’s high and middle-end vehicles, new energy vehicles and wind power industry, and the total sales volume still achieved steady growth despite the decline in the sales volume of steel for construction machinery. The company’s rich product line avoids the huge impact of the boom fluctuation of a single industry on the company’s performance, reflecting the company’s weak periodicity;
Financial data: the company’s sales expenses in 2021 decreased by 17.3% year-on-year, mainly due to the adjustment of some export expenses to operating costs in accordance with the interpretation of the standards. Financial expenses increased by 56.2% year-on-year, mainly due to the increase in interest expenses and the decrease in exchange gains. R & D expenses increased by 28.8%, mainly due to the increase in R & D investment. The cash flow from investment activities decreased by 139.2%, mainly due to the decrease in cash recovered from the company’s long-term assets such as time deposits and disposal of fixed assets;
External expansion and internal integration will accelerate the realization of the production capacity target of the 14th five year plan. The company is a leading manufacturer of special steel materials in the world. In addition to the two trump products of bearing steel and automobile steel, the company focuses on new varieties such as energy steel, seamless steel pipe and three high and one special steel. At the beginning of the 14th five year plan, the company proposed a production capacity target of 20 million tons, with an existing production capacity of 16 million tons. In 2022, the target sales volume is 14.9 million tons, and strive to 15.5 million tons. Tianjin Steel Pipe Co., Ltd. successfully participated in the external management of 3.5 million tons of production capacity. For the relocation and Continuation Project of Qingdao special steel, it is expected to form a production capacity of more than 1 million tons this year; The convertible bond raised investment project is expected to form 92000 tons of special metallurgical forging capacity in 2025. Through the upstream and downstream integration of the industrial chain, the company strives to effectively and reasonably expand production capacity through internal and external connectivity and high, medium and low-end coordination, and strive to achieve the production capacity goal of the 14th five year plan;
The business of bearing steel and automobile steel grew steadily, and the bargaining power of industrial steel was improved. The bearing steel and automobile steel produced by the company have reached a record high. The bearing steel has exceeded 2 million tons, and the sales volume has increased by 17.7% year-on-year. For 11 consecutive years, the sales volume of automobile steel has exceeded 3 million tons, ranking first in China for 14 consecutive years, and the market share remains in the lead. In the field of industrial steel, the company took shares and participated in the operation of Tianjin steel pipe, reducing the loss of nearly 1 billion yuan year-on-year, greatly enhancing the company’s influence in the seamless steel pipe industry;
Steel for wind power is growing rapidly, and large-scale offshore wind power business can be expected in the future. The special steel produced by the company is mainly used in key parts such as wind power bearing, flange and gearbox, binding well-known large customers. With the trend of large-scale offshore wind power, there are higher requirements for the corrosion resistance, strength and toughness of wind power materials, which will further improve the threshold of supplying such products. The company’s operating revenue in the energy field in 2021 was about 19.5 billion yuan (+ 28.9%), accounting for 20% of the total revenue. The company has a large section round billet production capacity of 400000 tons, which will effectively improve the company’s product sales price and market share in the field of wind power;
The convertible bond project is based on the high-end, focuses on the layout of three high and one special, and completes the localization substitution. On December 31, 2021, the company announced that the CSRC approved the company’s public offering of convertible bonds with a total amount of 5 billion yuan. The raised funds are mainly distributed in the three high and one special fields (superalloy, ultra-high strength steel, high-grade die steel and special stainless steel) that are the key development of the state. The production capacity of phase II is 39000 tons, including 3500 tons of high temperature / corrosion resistant alloy and 53000 tons of phase III, The capacity of high temperature / corrosion resistant alloy is 10000 tons, and the construction cycle is 3 years. After the project is completed, phase II and phase III special metallurgical forging projects can contribute 1.551 billion yuan and 2.643 billion yuan to the company respectively. Under the demand of import substitution, the production capacity of high-end products planned by the company can be fully digested and has broad prospects;
Investment suggestion: the company is the world’s leading special steel industry leader, deeply bound with downstream customers, reasonably expand externally, promote industrial chain coordination and improve industry influence; Actively distribute high-end production capacity internally and optimize product structure. The company’s automobile steel and bearing steel business will continue to maintain leading advantages. The large offshore wind power business will improve the profitability of the company’s energy steel. With the release of three high and one special production capacity, the company will further improve the proportion of high-end products. We estimate that the net profit attributable to the parent company from 2022 to 2024 will be 9.38/10.32/11.55 billion yuan, and the PE from 2022 to 2024 will be 10.8/9.9/8.8 times. It will be covered for the first time and the company will be rated as “buy”.
Risk tip: the downstream demand is less than expected, the expansion of production is less than expected, and the price rise of raw materials is more than expected
