As it turns out, it was wise to end the restructuring plan for “steel for finance”. Otherwise, Valin Steel (000932.SZ) annual profit may not reach 1.9 billion yuan.

On August 25, Valin Steel issued a mid-year report. From January to June, the company's revenue increased by 24% year-on-year, but profits increased by 248% year-on-year to 3.43 billion yuan. After the conversion, the profit in the second quarter was as high as 1.905 billion yuan, an increase of 375 million yuan from the first quarter. The profit level in the single quarter reached a record high.

The change in the profit of Valin Steel is consistent with the evolution of industry profits during the year. In the second quarter, coke and iron ore remained stable, but steel prices continued to rise, which in turn led to higher profit per ton of steel.

On the other hand, the downstream shipbuilding and machinery industry boomed sharply. In the first half of the year, domestic excavator sales increased by 60% year-on-year, which directly led to the demand of plate companies. In the meantime, Valin Steel's monthly sales to Sany Heavy Industry (600031.SH) increased to more than 25,000 tons.

It should be pointed out that the growth of Valin Steel is only a sample. Most steel stocks have maintained a substantial growth in the interim report, but there will be some nuances due to differences in product structure, cost and regional market.

High profit of sheet metal

Domestic large-scale steel enterprises are mostly controlled by local SASACs. When faced with operating losses and increased debt pressure, they want to achieve “hematopoietic” shell protection by placing relatively stable operating assets such as finance. This is quite the case in the previous two years. common.

Valin Steel is no exception. At that time, the company had planned to use wealth securities to replace the loss-making steel business.

Dramatically, the financial assets planned to be placed subsequently suffered losses, while the steel sector took advantage of the supply-side reforms and profits increased. The company was changed to “maintaining” the main business. Otherwise, Valin Steel will miss out on “creating the best performance in the semi-annual history”.

According to the data of the mid-year report, from January to June, the company achieved revenue of 43.481 billion yuan, a year-on-year increase of 24.14%, and net profit after deduction of 3.43 billion yuan, an increase of 259.6%.

The “difference” between revenue and profit growth is due to the increase in gross profit margin. The comprehensive gross profit margin of the company's steel business in the current period increased by 7.06 percentage points year-on-year.

According to the calculation results of Zhongtai Securities Steel Group, during the reporting period, Valin Steel's price per ton of steel was 4,885 yuan, up 258 yuan year-on-year, while the cost per ton of steel fell by 112 yuan, which increased the company's second-quarter ton steel gross profit. 370 yuan.

It is worth mentioning that Valin Steel's single-quarter profit in the second quarter reached 1.905 billion yuan, which continued to grow compared with the first quarter, which is consistent with the trend of industry profits.

According to the data provided, through the calculation of the cost and profit model, the average profit of the first quarter of the main varieties including thread and billet was 557 yuan, and the second quarter increased significantly to 768 yuan.

“Although the price increase of steel in the second quarter was limited, the price of iron ore and coke was relatively stable, which in turn led to a further increase in steelmaking profits in the second quarter.” Wang Guoqing said on the 27th.

Excluding industry factors, Valin Steel's product structure has also contributed to the company's growth.

In the early July of this year, the newspaper reported that the recovery of the downstream machinery industry led to a rebound in sheet metal glory, and the company with a high proportion of sheet metal business revenue had greater flexibility in the first half of the year. .

Valin Steel is a typical example, with plate revenue accounting for nearly 52% in the first half of the year.

In response to the financial report, the gross profit margin of the company's sheet products reached 18.59%, an increase of 8.92 percentage points over the previous year. The profit rate and improvement rate were significantly higher than other varieties such as long products and seamless steel pipes.

Hualing Iron & Steel also pointed out that "actively grasp the good development momentum of downstream shipbuilding, construction machinery and oil and gas industries... to increase sales of sheet and steel pipes. Among them, the monthly sales volume of Caterpillar, the world's largest construction machinery company, is stable at 15,000 tons. Above, the monthly sales volume of Sany Heavy Industry has increased to more than 25,000 tons."

High growth persistence

For the industry, Hualing Steel's growth this year has already belonged to “Bright”.

According to the August 27th consensus forecast, Hualing Steel's net profit for the full year of 2018 was 6.314 billion yuan. In other words, in the second half of the year, it is necessary to achieve a profit of 2.875 billion yuan. The average profit of Q3 and Q4 in a single quarter is 1.438 billion yuan, which is 4.8 times that of PE.

Although the price of coke at the raw material level has increased since July, the profit level of the plate has remained relatively stable.

“In the case of plate, the profit per ton of steel in the second quarter was 982 yuan. The average value in the third quarter has dropped slightly to 894 yuan.” The analyst said that while taking into account the enterprise inventory cycle, the hysteresis effect of raw materials entering the factory and production, Some of the previous low-priced raw materials can still be used in the third quarter.

At least, from the cost and price operation relationship from July to the present, the overall profit per ton of steel production is still in a sequential growth trend, but the range is narrower than that in the second quarter.

Analysts pointed out that domestic steel prices have risen for four months, and there is a risk of falling back, but the fundamentals are too strong. "The production season caused by the heating season and the blue sky defense war has made the market expect good, and the supply has also been generated. Actual suppression. Under the background of more optimistic supply and demand situation, it is expected to continue to operate at a high level in the second half of the year."

The continuation of the industry's prosperity will undoubtedly guarantee the profitability of Valin Steel in the second half of the year. What's more, after entering September, the market will once again enter the peak season of “Golden September and Silver 10”. Under the above background, it is highly probable that the seller's estimated profit of 6.3 billion yuan will be realized throughout the year.

Perhaps this is a fancy point. Although the “profit-making disk” of the two shareholders’ Hunan State-owned enterprises’ innovative private equity investment funds began to reduce their holdings, it did not affect the involvement of institutions and retail investors.

According to statistics, the fund holdings in the second quarter increased significantly from the 38.81 million shares to 124 million shares.

At the same time, the number of people in the top ten tradable shareholders of Valin Steel, the natural person Li Dongyu is the second largest tradable shareholder with 24.76 million shares.

It is worth noting that the outbreak of Valin Steel this year is not all good. After entering 2019, the company is bound to face the problem of excessive profit base this year. How will the industry change and how will the company continue to grow?

This is especially important for the secondary market that is focused on expectations. In the future, these issues will be left to Cao Zhiqiang, who is both chairman and general manager.

Cao Huiquan, the former chairman of the company who once led the company's turnaround in 2017, has been re-appointed as the director of the Hunan Provincial Defense Science and Technology Industry Bureau. The former general manager of the company, Yan Jianxin, has also resigned and changed to the general manager of the private enterprise Fangda Group Jiugang. 

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