\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 399 Fushun Special Steel Co.Ltd(600399) )
Event: the company released the annual report of 2021. In 2021, the company achieved a revenue of 7.414 billion yuan, a year-on-year increase of + 18.21%; The net profit attributable to the parent company was 783 million yuan, a year-on-year increase of + 42.02%; Deduct the net profit not attributable to the parent company of RMB 685 million, a year-on-year increase of + 34.33%. In a single quarter, 2021q4 achieved a revenue of 1.846 billion yuan, a year-on-year increase of + 18.48% and a month on month increase of + 2.53%; The net profit attributable to the parent company was 98 million yuan, with a year-on-year increase of – 33.22% and a month on month increase of – 61.42%. According to the third quarterly report, the decline in performance in the single quarter of 2021q4 was mainly affected by phased factors such as the national capacity restriction policy of the steel industry, the power restriction policy, and the rise in the cost of energy and raw materials. 1. Revenue: Generally speaking, the sales volume and unit price of special steel products of the company increased in 2021.
1) production volume: when important production projects and technical transformation projects have not yet been put into operation, the company has achieved comprehensive production and efficiency improvement in the processes of first refining mold casting, second refining non vacuum induction furnace, third refining induction furnace, electroslag furnace, consumable furnace and forging host by optimizing the production organization mode, adjusting technical process parameters and ensuring the operation quality of equipment. In 2021, the steel output will be 691500 tons, an increase of 7.76% year-on-year; The steel output was 550600 tons, a year-on-year increase of 9.12%. By product, the sales volume of alloy structural steel was 315500 tons, with a year-on-year increase of 0.54%; The sales volume of tool steel was 72400 tons, with a year-on-year increase of 15.48%; The sales volume of stainless steel was 74900 tons, with a year-on-year increase of 15.60%; The output of high-temperature alloy was 300000 tons, a year-on-year increase of 4.0%.
2) price: the average selling price of the company’s products rose in 2021, of which the average selling price of alloy structural steel was 9600 yuan / ton, a year-on-year increase of 15.53%; The average selling price of tool steel was 15900 yuan / ton, with a year-on-year increase of 6.46%; The average selling price of stainless steel was 18600 yuan / ton, with a year-on-year increase of 8.68%; The average selling price of superalloys was 217000 yuan / ton, with a year-on-year increase of 8.80%.
2. Profitability: the rising cost of raw materials leads to the decline of gross profit margin, obvious cost reduction and efficiency increase, and the net profit margin is improved. In 2021, the company achieved a gross profit margin of 20.10%, a year-on-year increase of -1.89 PCT, mainly due to the fact that raw materials accounted for 53.01% of revenue, an increase of 5.68 PCT compared with 2020. In addition, under the effect of scale, the company’s depreciation and manufacturing expenses accounted for 0.04 and 3.19 pct of revenue in 2021 respectively. In 2021, the company’s net interest rate was 10.57%, with a year-on-year increase of + 1.78pct, mainly due to the obvious decline in the cost rate under the company’s cost reduction and efficiency enhancement measures. In 2021, the company’s sales / management / Finance / R & D cost rate decreased by 0.01/2.46/0.11/2.32pct respectively year-on-year, and the total cost rate during the period decreased by 4.90pct. Facing the adverse factors such as the sharp rise in the cost of raw materials, the company has many measures to deal with it.
1) raw materials: it is still the main cost of the company (accounting for 66% of the operating cost in 2021). The rising prices of nickel, cobalt and chromium have a certain impact on the company’s performance. However, on the one hand, in the medium and long term, we expect the prices of nickel, cobalt, molybdenum and other alloy raw materials to eventually fall; On the other hand, after the order is confirmed, the company locks the corresponding raw material price, takes the raw material purchase cost and processing fee as the pricing basis, and can adjust the product price according to the raw material price. At present, the price increase has been gradually implemented; In addition, in order to cope with the rise of raw material prices, Fuzhou iron and Steel Co., Ltd. uses more inventory returned steel, tries its best to efficiently recover the high price main elements such as chromium, nickel, cobalt and molybdenum in the returned steel, and digests the backlog returned steel.
2) energy cost: it accounts for a relatively small proportion (12% of the operating cost in 2021). Based on the 20% increase in electricity charge, together with energy-saving measures and the use of green electricity, it is expected that the increase in electricity charge will only affect the level of tens of millions of expenses. In addition, Fuzhou iron and Steel Co., Ltd. continued to strengthen the control of power consumption, avoiding “peak” and “Valley” power consumption. In February 2022, the comprehensive power consumption of Fuzhou iron and Steel Co., Ltd. decreased by 1.34% year-on-year, and the total energy expenditure decreased by 5.1% month on month. 3) Improving yield: according to the principle of “metal balance”, the company mainly carries out work from the aspects of ingot shape optimization, reducing peeling allowance, optimizing cutting, reducing process cutting loss, improving the use of extended electroslag ingot and ingot weight limit control, and implementing the optimal ingot shape lifting, so as to improve the yield. For example, in 2021, the company carried out ingot shape optimization design through the system. By reducing the cap mouth rate, adopting the built-in cap mouth and adjusting the ingot shape size, the company optimized a total of 27 ingot shapes, so as to increase the yield of die casting materials by 2.26%. 4) Scale effect: in 2022, with the launch of new production capacity and the increase of equipment, the scale effect after batch production will appear rapidly.
3. In the future, with the continuous progress of important production projects and technological transformation projects, the new production capacity will bring greater output. It is estimated that the output of “three high and one special” core products will reach 75000 ~ 85000 tons in 2022.
1) previous projects: in order to improve the company’s special steel production capacity, the company announced the announcement of investment and construction of production projects and investment and construction of technological transformation projects on March 1, 2020 and March 1, 2021 respectively. Several projects are expected to be put into operation in 2022h1
2) new production expansion projects: in order to break through the production capacity bottleneck of the company’s key products and further improve the company’s product delivery capacity and product quality, the company plans to continue to invest in relevant technological transformation projects, with a total planned investment of 1.076 billion yuan. It mainly invests in three major projects: technological transformation projects to improve production capacity and product quality, energy conservation and environmental protection technology transformation projects and information construction projects. The construction period is 20222023, It will further improve the company’s production capacity, green development level, high-end, information and intelligent development level, and improve the company’s efficiency.
We believe that the long-term logic of Fuzhou iron and Steel Co., Ltd. has not changed. Looking at the quarter on quarter profit this year, the certainty is higher.
1) in the long run, the demand for superalloys is strong and still in short supply; High barriers and competition pattern will not change; The basic price of long-term growth is highly deterministic. On the demand side, the attribute of aero-engine consumables + start of maintenance market + long-term commercial development and gas turbine provide a larger market, and Fuzhou iron and Steel Co., Ltd. is also expected to enter the scientific research and supply system of commercial development; On the supply side, the supply of superalloys needs two steps. After completing the scientific research verification process and batch supply, the former has a long time cycle, while the latter has high requirements for quality stability and yield. We believe that the dominant position of Fuzhou iron and steel in military superalloys and high-strength steel during the 14th five year plan will not change, and now the core problem is the production capacity. In short, in the long run, the core competitiveness of Fugang has not changed, and its card position advantage is still significant.
2) performance: on the one hand, the company’s inventory at the end of 2021 was 2.187 billion yuan, an increase of 37.92% over the beginning of the period. The significant increase in inventory laid the foundation for the growth of the following companies. On the other hand, we expect that with the decline of nickel price and the gradual completion of price increase orders, the quarter on quarter performance in 2022 is still highly deterministic, especially the significant growth of capacity release performance in 2023. The company expects to achieve a net profit of 500800 million yuan in 2022. However, comparing the net profit target and actual net profit amount in the past few years, we find that the actual amount completed each year is significantly higher than the target at the beginning of the year. Because there is no need to worry about demand, we think the core depends on the company’s production expansion and cost side changes.
Investment suggestion: Fushun Special Steel Co.Ltd(600399) is the cornerstone enterprise of China’s large-scale construction of military equipment. Three high and one special products have a high market share in high barrier fields such as aviation development, military aircraft and missiles, which is expected to be maintained for a long time, which means that embracing Fuzhou iron and steel is embracing the high vision of the military industry. We expect the net profit attributable to the parent company from 2022 to 2024 to be 948 million yuan, 1519 million yuan and 2123 million yuan respectively, corresponding to the valuation of 31x, 19x and 14x, maintaining the “buy” rating.
Risk tip: the company’s production expansion process can’t wait for market expectations and fluctuations in raw material and energy prices.
