\u3000\u3000 Fushun Special Steel Co.Ltd(600399) (600399)
Event overview: on January 13, the company announced that it is expected to realize a net profit attributable to the parent of RMB 728 million to RMB 815 million in 2021, and a net profit attributable to the parent of RMB 643 million to RMB 704 million after deduction. According to the calculation, in 2021q4, the company realized a net profit attributable to the parent company of 43 million yuan to 130 million yuan, with a month on month Q3 of – 83.12% to – 48.86%; Net profit deducted from non parent company was RMB 13 million to RMB 74 million, which was – 94.25% to – 66.82% month on month (Q3), lower than our expectation.
Analysis and judgment:
2021q4 performance decline or production restriction. Under the background of national policies such as “reducing crude steel output” and “double control of energy consumption”, assuming that the steel output of the company in 2021 is the same as that in 2020, it is estimated that the steel output of the company in 2021q4 is 70800 tons, with a sharp decline of 43.27% month on month (Q3) and 40.10% year-on-year (2020q4). The decline in production and sales may lead to an increase in the depreciation and amortization expenses of a single ton of steel.
In 2021q4, product prices fell month on month, raw material costs fell, and power costs rose. In terms of price, the market price of 2021q4 stainless steel decreased slightly by 0.60% month on month, the market price of alloy structural steel decreased by 3.22% month on month, and the market price of tooling steel increased by 1.86% month on month. In terms of raw materials, the market price of 2021q4 scrap steel decreased by 6.48% month on month. However, with the acceleration of market-oriented reform of electricity price, the increase of electricity price may affect the production cost of the company. On the whole, the sharp decline in 2021q4 performance is mainly due to the decline in production and sales and product prices.
The future contribution of Superalloy field can be expected. Superalloys make a great contribution to the company’s gross profit. In 2020, the company’s gross profit margin of superalloys was as high as 40.38%, contributing more than 32% to the company’s gross profit. The company occupies more than 80% of the aerospace market. The demand growth of superalloys in military and other fields is expected to drive the sales of Superalloy products and further thicken the company’s performance.
The technological transformation project is overweight, with an additional capacity of 124000 tons in the next 2-3 years, and the product structure is expected to further change to high-end. The company’s four main products are high-temperature alloy, ultra-high strength steel, special metallurgical stainless steel and high-grade tool steel, which are widely used in six fields, such as aerospace, national defense and military industry, energy and power, petrochemical industry, transportation, machinery, electromechanical, environmental protection and energy conservation. Several technical transformation projects of the company are in transit, and it is expected that the new output will reach 124000 tons in the next 2-3 years, of which 2022 is the peak period of production. The downstream prosperity of the company’s high-end products is high. The company’s existing capacity of superalloy is about 5000 tons. With the technical transformation project put into operation, the future capacity may be increased to more than 10000 tons. Under the background of the steady growth of market demand for special steel, the company continues to increase R & D investment and scale up a number of technical transformation projects. The capacity expansion of high-end products is expected, and the product structure is expected to further change to high-end.
Investment suggestion: the company focuses on the development of products in national defense, military industry, aerospace and other fields. With the gradual production of technical transformation projects, the company’s product structure is further optimized, the competitiveness is expected to be continuously enhanced and drive the release of performance. We expect that the net profit attributable to the parent company from 2021 to 2023 will be RMB 773 / 1088 / 1284 million in turn, corresponding to the closing price of RMB 17.85 on January 13, 2022, and the PE from 2021 to 2023 will be 46 / 35 / 27 times in turn. The company will be given the rating of “prudent recommendation” for the first time.
Risk tip: the product demand is less than expected, and the price of raw materials fluctuates greatly.
