\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 399 Fushun Special Steel Co.Ltd(600399) )
Event: the company released the first quarterly report of 2022. In 2022q1, the company achieved a revenue of 1.822 billion yuan, a year-on-year increase of + 1.03%; The net profit attributable to the parent company was 85 million yuan, a year-on-year increase of - 50.58%; Deduct the net profit not attributable to the parent company of 65 million yuan, a year-on-year increase of - 59.84%; Compared with 2021q4, the net profit attributable to the parent company was -13.07%.
1. Revenue: 2022q1 superalloy increased year-on-year, alloy structural steel sales fell year-on-year, and the overall revenue was nearly flat year-on-year. According to the operation data of various products, the production and sales of superalloys have increased significantly, but the overall price remains flat. It is expected that the old contract is still being implemented. We believe that the subsequent implementation of price increase orders is conducive to repairing the profitability; The middle-class sales of alloy structural steel fell by more than 40%, but the average selling price increased significantly by 43.40%. We believe that the main reason is the increase in the overall selling price caused by the large volume of military high-strength steel.
2. Profit: the decline in net profit in 2022q1 was mainly due to the significant increase in R & D expenses. The R & D expenses in 2022q1 were 98 million yuan, a year-on-year increase of 224.65%. In terms of the overall gross profit margin, the gross profit margin in 2022q1 was 15.82%, a year-on-year decrease of 0.89pct. We believe that it is due to the rise in the prices of raw materials and energy, especially the rise in the price of nickel, which has a great impact on nickel containing products such as superalloys. However, we estimate that the overall gross profit margin is flat due to the increase in the revenue proportion of high-strength steel products in alloy structural steel. From the cost side, the management expenses and R & D expenses of 2022q1 are (84 million yuan, + 34.27%) and (98 million yuan, + 224.65%) respectively. The sharp increase in expenses during the period is the main reason for the decline of net profit attributable to parent company.
3. We expect that the downward trend of Fushun Special Steel Co.Ltd(600399) follow-up will improve quarter by quarter with the increase of product price, the release of production capacity and the superposition of nickel price.
1) product price increase: according to our steel network and steel enterprise network, in view of the rise of cost side, Fuzhou iron and Steel Co., Ltd. has put forward price increase notices twice on January 24 and March 18, 2022. First price increase notice: for the orders of class a steel products received from February 1, 2022, the price of products with alloy element content of nickel + cobalt ≥ 5% shall be increased by no less than 10%; The price of other products will be raised by no less than 5%. Second price increase notice: for the contract orders received from 0:00 on March 18, 2022, on the basis of the base price on March 17, for all varieties of special steel products, the price will be increased by 200, 400 and 500 yuan / ton for each 1% molybdenum, vanadium and nickel. We expect that with the gradual implementation of the price increase, the probability is that the whole industrial chain of aviation development will jointly bear the rise of raw material prices.
2) capacity release and scale effect: in order to improve the company's special steel 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 start production in 2022h2. In addition, the production expansion plan is still released in 2022h1. From a long-term perspective, the long-term demand growth of Fuzhou iron and steel is highly deterministic and the supply pattern is stable. Therefore, the release of production capacity is the core contradiction of sustained performance growth, and the current raw materials are only a short-term influencing factor.
3) impact of raw materials: short-term damage, long-term nickel price downward provides great performance flexibility. The sharp rise in short-term nickel price has caused excessive concern in the market and led to excessive feedback. Nickel is used in the company's high-temperature alloy, stainless steel and other products, which can be transmitted by civil products. At present, there are also price increase measures for military products. The price of nickel and molybdenum is expected to rise in the short term, but the price of nickel and molybdenum will not fall in the long term; In addition, in order to cope with the rise of raw material prices, Fuzhou iron and Steel Co., Ltd. used more inventory returned steel, tried its best to efficiently recover the high price main elements such as chromium, nickel, cobalt and molybdenum in the returned steel, digested the backlog returned steel, and recovered more than 10000 tons of class II returned steel in February 2022.
4) improve the yield: the company improves the yield by adjusting the process route (optimizing ingot shape, reducing steel head and tail loss, reducing finishing loss, etc.). In February 2022, on the one hand, the compliance rate of ingot and billet selection and planning of the company reached 100%; On the other hand, by optimizing the electroslag smelting process and reducing the cutting amount of finished products, the company has increased the yield of finished products of electroslag ingots by 1.64% compared with the average level in 2021.
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 25X, 16x and 11x, 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.
