\u3000\u30 Shenzhen Quanxinhao Co.Ltd(000007) 78 Xinxing Ductile Iron Pipes Co.Ltd(000778) )
Event overview: on April 18, the company released its 2021 annual report: in 2021, the company achieved a revenue of 53.301 billion yuan, a year-on-year increase of 24.07%; The net profit attributable to the parent company was 2.007 billion yuan, a year-on-year increase of 10.72%; The net profit deducted from non parent company was 1.818 billion yuan, with a year-on-year increase of 13.95%. In 2021q4, the company achieved a revenue of 11.254 billion yuan, a year-on-year decrease of 1.62%; The net profit attributable to the parent company was 92 million yuan, a year-on-year decrease of 74.94%; Deduction of net profit not attributable to the parent company was -72 million yuan, a year-on-year decrease of 136.39%.
Comments: raw materials rose sharply, and the output of Youte steel increased
① production volume: in 2021, the production and sales of cast pipe products remained stable, and the output of excellent special steel increased steadily. In 2021, the company completed the production of 2.95 million tons of cast pipes, pipe fittings and castings, which was basically the same as last year; At the same time, the company increased the adjustment of product structure, completed the output of excellent and special steel of 2.07 million tons, with a year-on-year increase of 30%, and completed the output of ordinary steel of 3.7465 million tons, with a year-on-year decrease of 2.85%; The output of steel grating was 88200 tons, with a year-on-year increase of 37.81%.
② price: raw materials rose sharply, and the overall gross profit margin of the company fell. In 2021, the price of iron ore, the main raw material of steel products, was + 49.06%, the price of main coking coal was + 80.75%, the price of coke was + 50.08%, and the price of scrap steel was + 29.69%. Faced with the sharp rise of raw materials and the obvious decline of steel price in the fourth quarter, the company’s gross profit margin in 2021 decreased by 2.83pct to 10.17%, including the gross profit margin of cast pipe decreased by 10.09pct to 10.25%.
Core focus in the future: the industry leader of ductile iron pipe, and the downstream demand can be expected in the future
① the market concentration of ductile iron pipe is high, and the company is located in the leading position in the industry. At present, the company has a casting pipe capacity of 3 million tons. At present, it has formed a production capacity layout of nodular cast iron pipes covering major regions outside China. Its products are exported to more than 120 countries and regions in the world, and its sales network covers Asia, Europe, Africa and America. The company carries out independent research and development in new materials, products, processes and intellectualization of nodular cast iron pipes, with strong product competitiveness. The production scale and comprehensive technical strength of the company rank first in the world, and the leading position of nodular cast iron pipe industry is clear.
② steady growth is the main theme of 2022, and the downstream demand of nodular cast iron pipe can be expected. In the context of steady growth, infrastructure investment, as a counter cyclical adjustment tool, is expected to stabilize and rebound in investment growth in 2022. Among them, water conservancy, environment and public facilities will be one of the driving points of infrastructure investment, while ductile iron pipes are widely used in the fields of water supply, gas supply, drainage and sewage in municipal engineering, and the downstream demand is expected to be gradually released.
③ product upgrading was accelerated, and the production and sales of Youte steel increased simultaneously. The company promotes the adjustment of product structure according to the market changes and the development needs of the company. In 2021, the company produced 2.0741 million tons of excellent and special steel, with a year-on-year increase of 29.96%. 31 brands of new products were developed, including steel for vehicle axle, steel for bucket tooth, steel for grinding ball, steel for automobile fastener, steel for wind power high-strength bolt and household appliance bolt. The steel for railway vehicle axle has been supplied in batches.
Profit forecast and investment suggestion: benefiting from the boost of infrastructure demand, the gross profit margin of the company’s cast pipe products is expected to increase, and the output of Youte steel is expected to increase steadily. We expect the net profit attributable to the parent company in 202224 to be RMB 2.22/25.93/3.068 billion in turn, and the PE corresponding to the closing price on April 20 is 8x, 7x and 6x, maintaining the “recommended” rating.
Risk warning: the price of raw materials is rising, the downstream demand is less than expected, and the covid-19 epidemic continues to affect.
