\u3000\u3 China Vanke Co.Ltd(000002) 057 Sinosteel New Materials Co.Ltd(002057) )
Q1 net profit increased significantly. According to Q1 performance forecast, the company achieved a substantial increase in profits. During the reporting period, the company realized a net profit attributable to the parent company of 60-66 million yuan (yoy+115.3%-136.8%), and a net profit deducted of 44-50 million yuan (yoy+139.2%-171.9%). The main reasons for the substantial growth of the company’s performance are that the business situation of each sector is good, the detection business continues to expand, the overall magnetic material business continues to have a high outlook, the increase of government scientific research subsidies received, and the improvement of the profitability of joint-stock companies contribute to some investment income.
The market share is expected to continue to increase through deep cultivation and large infrastructure testing. Highlights of the company’s testing business: 1) high revenue growth and stable profit: Zhengzhou metal products research institute achieved a revenue of RMB 4.4/4.7/5.6/710 million and cagr42.2 billion in 20172020 0%, the gross profit margin is stable at more than 50% throughout the year, leading the peers. 2) The market share is expected to further improve: the company’s testing business has a history of more than 30 years. Relying on the national layout of railway business and complete qualifications, the company has actively expanded non-ferrous business in infrastructure fields such as roads and bridges through mergers and acquisitions in recent two years. 3) Industry development policy support: at present, the second draft of China’s 14th five year plan for the development of certification, accreditation, inspection and testing has been formed. The plan points out that during the 14th Five Year Plan period, the certification, accreditation, inspection and testing industry will enter a new stage of high-quality development with both rapid development and reform and innovation.
Benefiting from carbon neutralization, the demand for magnetic materials welcomes explosive growth. In the 14th five year plan, the company plans to vigorously develop the magnetic material business. Now it plans to expand the production capacity of permanent magnet devices to 34000 tons (15000 tons now), rare earth permanent magnets to 5000 tons (15000 tons now), and complete the addition of 15000 tons of soft ferrite. Future highlights of magnetic materials business: (1) the downstream of the company’s magnetic materials are applied in the fields of traditional household appliances and new energy vehicles. Under the background of carbon neutralization, the industry is expected to continue to have a high outlook. We predict that the consumption of high-performance NdFeB permanent magnet in China will reach 87000 tons in 2025 and cagr16.5 tons in five years 6%； The space of soft ferrite industry is expected to reach 14.9 billion, with cagr11.1 billion in five years The R & D institutes are among the top-level enterprises in the national R & D industry, with a rate of 2.9% in 2020.
The pioneer of market-oriented reform and the improvement of incentive system. The company insists on deepening market-oriented reform, deeply binding the interests of employees and the interests of the company, and promoting the rapid development of the company. At the beginning of 2020, the company was selected as the “science and technology reform demonstration enterprise” of state-owned assets reform; In April 2021, Sinosteel national inspection, a subordinate inspection subsidiary, completed the mixed reform, with employee stock ownership accounting for 3.1%; In September of the same year, the company proposed equity incentive and planned to grant 13.28 million stock options to 148 people at the price of 4.15 yuan / share.
Profit forecast: it is estimated that the net profit attributable to the parent company in 21-23 years is RMB 210 / 3.1 / 420 million respectively, the corresponding EPS is RMB 0.28/0.41/0.56, and the corresponding PE is 29.6/20.3/15.0x. The company has a good incentive system for testing business, and the magnetic material business enjoys the growth of the industry. In the future, it is expected to maintain high revenue and profit growth and maintain the “buy” rating.
Risk tips: the downstream demand growth rate of magnetic materials is lower than expected, the expansion of testing business is lower than expected, and the price fluctuation risk of raw materials.
