The Secret Of "The Strongest Quarterly Report In History" Of Cyclical Stocks

Dong Peng, researcher of the 21st Century Capital Research Institute

Chinalco, the first quarter forecast net profit of 967 million yuan, a year-on-year increase of about 30 times.

COSCO Haikong predicted a net profit of 14.55 billion yuan in the first quarter, up 52 times year-on-year.

Chongqing Iron and steel, the first quarter forecast net profit increased 1.08 billion yuan, 258 times year-on-year growth.

However, in the disclosure process of this year's first quarter report, it is very common for cyclical stocks to increase several times or dozens of times, and the overall flexibility will be significantly higher than in previous years.

The 21st Century Capital Research Institute believes that there are two reasons: first, in the first quarter of 2020, the domestic epidemic situation is in the stage of centralized spread, and the periodic industry shutdown and shutdown cases represented by upstream raw materials occur frequently. In addition, the prices of bulk commodities fall in the first quarter, resulting in the low profit base of Listed Companies in 2020.

Second, the international and domestic raw material markets bottomed out in early April 2020, and the Wenhua commodity index, which tracks the prices of a package of commodities, has risen by nearly 40% so far, which has once again brought favorable conditions for cyclical stocks to drive up profit margins.

Driven by low profit base and rising product prices, the profit increase of cyclical industries in the first quarter of this year is expected to be significantly higher than that in previous years.

This phenomenon is expected to transmit to the secondary market volatility level.

In terms of the market performance from April 1 to 8, stock prices of some cyclical industries have already reacted to some extent driven by event factors such as production restriction.

According to statistics, within the above statistical range, the average increase of Wande all a index components is 1.85%, the average increase of steel stocks is 10.65%, and the average increase of nonferrous metal plate is 4.22%.

According to the research of the 21st Century Capital Research Institute, the first quarter report of some other sub industry companies that have not disclosed the performance forecast will continue to contribute surprise. Next, with the improvement of the recognition degree of the secondary market, the cyclical stocks with actual performance support and still in the upward channel will still be the focus of market speculation in the second quarter.

The profit base in 2020 is at a historical low

Let's take a look at the total plate. In order to reflect the profitability of the first quarter of 2020, we select the "arithmetic average of net profit after deducting non-profit" as the measurement standard.

By comparing the first quarter report data from 2010 to 2020, we can know that the profitability of major cyclical industries in the first quarter of 2020 is relatively low.

Among them, Shenwan mining industry covers oil, coal and other mining industries. From 2010 to 2020, the average non net profit of the industry in the first quarter fluctuated from 500 million yuan to 1.5 billion yuan, with a peak value of 1.582 billion yuan in 2011 and a low point of - 227 million yuan at the bottom of commodity market in 2016.

In the first quarter of 2020, the above indicators of the industry are 99 million yuan, which is in the second lowest level of the statistical range.

In the first quarter of 2020, the average net profit of Shenwan chemical industry is - 18 million yuan, which is the first loss since 2010, which is the lowest point in the statistical range.

According to the data, the first quarter of 2020 continued the downward trend of commodities in 2018, and the profitability of the main upstream raw material industry continued to decline. Combined with the impact of the epidemic at that time, the absolute value of the average profit of the current industry in 2020 was mostly at the relatively low level since 2010.

Further comparison of industry data shows that in addition to the steel and building materials industry including cement and glass manufacturing, the profitability of the first quarter of 2020 will slightly increase, while the mining, chemical, non-ferrous, machinery and automobile industries will be in a year-on-year decline in 2020.

Among them, the profit per ton of steel industry in the first quarter of 2021 does not appear too obvious improvement, and the ultra-high elasticity of performance of some listed steel enterprises comes from the extremely low profit base in the same period of 2020.

Taking Chongqing Iron and Steel Co., Ltd., which has the most significant growth rate at present, its net profit in the first quarter of 2020 is only 4.173 million yuan. At the same time, the growth of its profit scale also includes the driving force brought by the internal governance improvement of Baosteel, such as product optimization, production increase and capacity expansion after Baosteel's entry into the main business.

To sum up, we can draw the conclusion that the profitability of cycle stocks in the first quarter of 2020 is at the absolute low level in recent 10 years and the current profit base is low.

It should be pointed out that due to the obvious differences in revenue composition, cost and operating efficiency of individual enterprises, the above characteristics are more consistent with the leading companies in various cyclical industries.

Take Chalco, which just released its performance forecast on the evening of April 8, as an example, its net profit in the first quarter is expected to be 967 million yuan, an increase of about 30 times over the same period last year. It is driven by the low base of 31 million yuan in the same period of 2020, and the same is true of Jiangxi copper, which has an increase of 419% in the same night.

Commodity index up more than 25% year on year

The low profit base of the first quarter report in 2020 is only a prerequisite. After adding the impact of the rise in raw material prices since then, the performance elasticity of the above cyclical industries is calculated by an additional multiplication.

There are too many segmented products. Therefore, we choose CRB index and Wenhua commodity index, which track the price operation of overseas and domestic bulk commodities, as the observation objects.

In the early stage of the first quarter of 2020, the two major indexes were in a unilateral decline state. The CRB index bottomed out on April 21, 2020, and the Wenhua commodity index bottomed on April 2, 2020. Since then, it has rebounded continuously and reached a new stage high in late February 2021. It is still at a relatively high level.

According to statistics, in the first quarter of 2020, the CRB index range fell by 34.55%, with a weighted average of 162.32 points; in the first quarter of 2021, the index range rose by 9.31%, and the weighted average rose to 183.47 points.

The running trend of Wenhua commodity index is consistent. In the first quarter of 2020, the index fell by 13.14% and the weighted average price was 140.44 points; in the first quarter of 2021, the index range increased by 5.98%, and the weighted average price was 176.19 points.

In the first quarter of this year, the price of overseas raw materials increased by 13% compared with the same period of last year, and the price of domestic raw materials increased by 25.46% year on year.

This can only represent the overall price trend of upstream raw materials. If further subdivided into a single commodity category, the price rebound will be more obvious.

The 21st Century Capital Research Institute found that the prices of industrial raw materials in the upstream industry have increased to varying degrees since April 2020. Among the 65 commodity futures included in the sample, 56% of the sample varieties have risen, with an average increase of 41.62%.

Further subdivided, the varieties with the highest growth rate were mainly energy, industrial metals and petrochemical products, while the varieties with a decline in the same period were mainly concentrated in the field of animal husbandry and agricultural products.

It should be pointed out that since most of the commodities included in the sample are upstream raw materials, their production cost side is relatively fixed, and when the price of product side rises sharply, the profit margin of relevant industries will rise sharply.

Reflecting on the performance of each cycle stock, driving its profit scale to rise geometrically, and superimposing the impact of the low base caused by the epidemic in the same period of last year, the overall performance elasticity of the first quarter of this year's cyclical stocks is significantly higher than that of previous years.

COSCO Haikong sounded the "horn" of periodic stocks

COSCO Haikong has a net profit of 292 million yuan in the first quarter of 2020 and a forecast net profit of 15.45 billion yuan in the first quarter of this year, almost catching up with the peak profit level since its listing. In 2007, the company's annual profit was only 19.1 billion yuan.

The 21st Century Capital Research Institute believes that after COSCO's huge demonstration effect, the hot spots in the secondary market may shift to cyclical industries in the near future, and the "horn" that ignites cycle stocks will blow.

The core logic is that the huge performance flexibility given by the above quarterly report will directly promote the growth of earnings per share of related enterprises and the improvement of valuation level.

Taking COSCO Haikong as an example, the earnings per share in the first quarter was 1.26 yuan, with an annualized earnings per share of 5.04 yuan. On April 6, each seller expected that the earnings per share in 2021 would be between 3.31 yuan and 3.79 yuan.

Taking the median value of 3.55 yuan, and according to the closing price of 14.68 yuan on April 6, the company's valuation is only 4.14 times.

In fact, as early as the fourth quarter of 2020, the buyer's institutions have begun to increase their holdings of individual stocks with high prosperity and profit growth in the first quarter of 2020.

In 2020, the number of shares held by the fund in COSCO Haikong will change in a "pulse" manner, with a decrease in the first and third quarters and an increase in the second and fourth quarters. At the end of the third quarter, the number of shares held by the fund was 13.62 million, which increased by 19.63 times to 281.04 million shares by the end of the fourth quarter. The number of 280 million shares held by the fund at the end of the third quarter of 2010 also reached a new high since the third quarter of 2010.

It is not realistic for ordinary investors to track the prosperity of the industry, but following the above ideas, the trend of fund holdings is enough to indicate the direction. In this regard, we selected the index of "fund shareholding ratio (arithmetic average)" as a reference, and compared the data of all sub sectors of Shenwan.

In the end, 17 sub sectors with more than 100% increase in the fourth quarter of 2020 were selected.

It can be seen from the comparison that, except for the wine industry due to the very low base, the increase of fund shareholding in other industries is generally between 1-3 times.

In terms of industry division, small metals and rare metals in nonferrous industry, spandex and polyester in nonferrous industry, and special posts and tires related to automobile industry in nonferrous industry have become key objects of fund increase.

It needs to be pointed out that many stocks in the above industries have experienced a sharp rise in their share prices during the fourth quarter fund holding increase phase. However, in the process of market adjustment in the first quarter of 2021, the stock price has dropped significantly.

Taking lithium in rare metals as an example, Ganfeng lithium industry reached a high of 149.3 yuan in January and a low of 86.37 yuan in March, with a maximum withdrawal of more than 42%. As of April 9, the company's closing price rose slightly to 97.61 yuan.

From the perspective of profit expectation, the company takes the opportunity of doubling the price of lithium carbonate, and the company's profitability will probably increase in the first quarter.

In addition, Ganfeng lithium is also in line with the above characteristics of low base, and its net profit attributable to parent company is only 7.74 million yuan in the first quarter of 2020.

Assuming that the profit can return to the level of 2017, Ganfeng lithium will have a profit growth of more than 10 times in the first quarter of this year as the above cycle stocks.

More importantly, the lithium battery industry is slightly different from other cyclical industries. The relatively definite increase in the penetration rate of terminal electric vehicles will bring medium and long-term prosperity support to the whole power battery sector. The growth rate of the "total plate" of the industry is higher than that of other traditional cyclical industries.

Similar stocks are not in the minority.

Although the systematic market of cyclical stocks is still unknown, the huge flexibility of the first quarter of this year undoubtedly provides an opportunity for all participants to repair the valuation.