May 19, 2022 (China Knowledge) - CITIC Pacific Special Steel (000708) has almost crossed the one hundred-billion revenue in 2021 to report RMB 97.33 bln, a year-on-year increase of 27.6% and this is its seventh consecutive year of growth. Its net profit jumped 31.8% in the same period to RMB 7.95 bln.
In the latest 2022 Q1 earnings, the largest special steel manufacturer in China managed to register RMB 24.58 bln in revenue, up 6.9% YoY, with net profit at RMB 1.95 bln. This first quarter results beats most of the market estimates that slashed a substantial portion among the industry peers due to the industry’s cyclical nature.
Most notably is the sharp increase in the prices of crude fuel and general decline in the performance of the industry’s peers, CITIC Pacific Special Steel was able to realize a net profit of RMB 1.89 bln in Q4 last year, considering the backdrop of the industry and macro challenges. More importantly, the company has able to achieved seven consecutive years of growth from 2014 to 2021. In Q1 2022, the company’s output continued to increase by 4.47%, and sales volume rose 0.7% YoY; yet managed to boost its sales prices by 6.2%. Hence, its gross profit per ton of steel rose by 3% in Q1.
As one of the world’s largest special steel manufacturers and a market leader in China, the company’s bearing steel output saw a historical high output of over 2 mln tons last year, up 17.7% YoY. This production figure put CITIC Pacific Special Steel as the world’s largest, and over a period of eleven consecutive years.
Well-known for its steel products in the automobile industry the company had produced more than 3 mln tons last year, ranking it first in China for fourteen consecutive years. As markets demand for higher quality steel products the needs of more durable steel rose 45%, the demand for high temperature and corrosion-resistant alloys shot up by 121%, and its demand for special stainless steel saw a spectacular growth of 39%.
China's auto production and sales was on an upward trend, reaching 26.08 mln and 26.28 mln units, respectively, up 3.4% and 3.8% YoY, ending the 3 consecutive years of decline since 2018. Among them, new energy vehicle (NEV) has had the biggest growth in China's auto industry. The production and sales of NEVs in China last year reported 3.55 mln and 3.52 mln units, respectively, achieving a 1.6 times growth YoY, and the market share versus other types of vehicles increased to 13.4%. The NEV development has shifted from policy-driven to market-driven.
Pivoting on market leadership in the auto industry CITIC Pacific Special Steel is establishing close cooperation with new energy vehicle OEMs such as Tesla (TLSA), BYD (002594), SAIC (600104), Volkswagen, Nio (NIO), and Li Auto (2015.HK)(LI), to ensure strong orders that could contribute significantly on a quarter-on-quarter, year-on-year basis.
In areas of green and renewable energy the company has set sight and drawn a long-term development blueprint for the wind power energy segment. In earlier years, it has laid out strategic plan to supply to the energy market requiring special steel with the goal of being the world’s largest supplier of such steel. On records CITIC Pacific Special Steel is the world’s only-manufacturer of 1.2-meter-diameter round billets used for installation of mega wind turbines with an annual output of 400,000 tons. On top of these it is also equipped with certifications for advance steel structure and related steel products use in the offshore marine engineering and for the oil and gas companies worldwide.
The future upward trend of large-scale wind turbines and offshore wind power will boost the demand of wind power materials in terms of corrosion resistance, high strength and high toughness. CITIC Pacific Special Steel has tremendous competitive edge in this technical area.
To deepen and strengthen its leadership in the steel industry CITIC Pacific Special Steel is seeking expansion through mergers and acquisitions in the mid-to-high end markets. The results from several mergers and acquisitions have created a 35% market share for the company in China’s special steel market last year.
The company is now able to produce more than 16 mln tons of special steel annually, and it is striving to achieve a further production capacity of 20 mln tons during the "14th Five-Year Plan" (2021-2025) period. Concurrently, amid these challenges and as China upgrades its industrialization, the company has recently developed the world’s first 100-ton electric furnace smelting for high-durable, low-density steel plate production technology, achieving a major technological breakthrough.
As Charlie Munger pointed out at this year’s Berkshire Hathaway’s annual shareholders meeting: “China is one of the few equity markets that still offers attractive value investing opportunities”. Presently priced at a relatively lower PE in comparison with foreign peers, CITIC Pacific Special Steel’s absolute market leadership in a variety of steel products internationally; and exposure to a diversified industries’ strong growths are seemingly the fundamentals that would easily pass the checklist of value investing criteria.
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