\u3000\u30 Shenzhen Quanxinhao Co.Ltd(000007) 78 Xinxing Ductile Iron Pipes Co.Ltd(000778) )
Event: the company released its annual report for 2021. In 2021, the company achieved an operating 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 attributable to the parent company after non deduction was 1.818 billion yuan, a year-on-year increase of 13.95%, which was in line with our expectations.
Affected by the rise in raw material prices in 2021, the decline in the gross profit margin of the casting business dragged down the company’s profit growth, and the gross profit margin of the casting business is expected to stabilize and recover in 2022. In 2021, the operating revenue increased by 24% and the net profit attributable to the parent company increased by 14%, mainly due to the increase of raw material prices in 2021, which dragged down the gross profit; In the single quarter of 2021q4, the revenue was RMB 11.254 billion, with a year-on-year increase of – 1.62%, and the net profit attributable to the parent was RMB 92 million, with a year-on-year increase of – 74.94%. The gross profit margin in 2021 was 10.17%, with a year-on-year increase of -2.83pct. The gross profit margins of Q1, Q2, Q3 and Q4 in 2021 are 9.42%, 13.09%, 9.13% and 8.30% respectively. Sub business income: the company’s income from casting pipes and pipe fittings was 15.054 billion yuan, a year-on-year increase of 8%; Pu steel achieved a revenue of 15.781 billion yuan, a year-on-year increase of 24%; Youte steel achieved a revenue of 10.856 billion yuan, an increase of 87% year-on-year. In 2021, the company’s revenue of Youte steel achieved rapid growth, which became the highlight of the company’s performance growth in 2021. We expect the company’s cast pipe business to achieve brilliant performance in 2022. Gross profit margin of each business: the gross profit margin of cast pipes and pipe fittings was 10.25%, year-on-year -11pct, which was mainly caused by the rise of costs and the main reason for dragging down the growth of the company’s profits; Pu steel achieved a gross profit margin of 13.5%, with a year-on-year increase of + + 2.46pct; Youte steel achieved a gross profit margin of 10.21%, a year-on-year increase of + 1.94pct. In terms of unit price, the unit price of cast pipes and castings in 2021 was 5109 yuan / ton, with a year-on-year increase of 8.3% (the business cost of cast pipes and fittings increased by 23.5% year-on-year); The unit price of ordinary steel was 4212 yuan / ton, with a year-on-year increase of 28.0%; The unit price of Youte steel was 4770 yuan / ton, a year-on-year increase of 31.2%.
Under the background of large investment in national water pipe network, we are optimistic about the leading position of the company as the pipe of water pipe network: in terms of policy: in December 2021, General Secretary Xi stressed the need to take the pipeline reconstruction and construction as an important infrastructure project at the central economic work conference. Competitiveness of the company: in 2020, the company’s pipe casting capacity was 3.2 million tons, making it the largest ductile iron pipe manufacturer in China. The second, third and fourth manufacturers in China were Shandong Guoming, Anyang Yongtong and Saint Gobain (China). The three production capacities were less than Shanghai Pudong Development Bank Co.Ltd(600000) tons / year. The total production capacity of the four enterprises accounted for about 50% of China’s pipe casting capacity. As the dragon one of China’s ductile iron pipes, Compared with other manufacturers in China, it has significant advantages. The rising cost of raw materials in 2021 has dragged down the gross profit margin of the company’s cast pipe business. We judge that the demand for cast pipe increases under the background of water pipe network transformation. Under the condition of relatively stable supply (the process of new steel plant under the background of carbon neutralization is long), the gross profit margin of cast pipe business is expected to be repaired.
Profit forecast and investment rating: we adjusted the company’s EPS forecast from 0.71 and 0.89 yuan / share to 0.62 and 0.82 yuan / share from 2022 to 2023. It is expected that the EPS will be 1.01 yuan / share in 2024, corresponding to 8 times, 6 times and 5 times of PE. Based on the background of large investment in national water pipe network, the company, as the leader of pipe network industry, maintains the “buy” rating.
Risk warning: the risk of national fiscal policy tightening beyond expectations; The risk that the intelligent transformation process of China’s water pipe network is not as expected, and the risk of sharp fluctuations in steel prices and iron ore prices.
