Guide to this report:
The results for the first three quarters of '22 fell short of expectations. The company has continuously optimized the automotive steel product structure to enhance product competitiveness and profitability; at the same time, the company has made new breakthroughs in silicon steel products since 22 years, and is expected to contribute more growth in performance in the future.
Investment points:
Maintain the “increase in holdings” rating. In the first three quarters of '22, the company achieved revenue of 10.9 billion yuan, a year-on-year decrease of 6.71%; net profit of Gimu was 193 million yuan, a year-on-year decrease of 97.44%, and performance fell short of expectations. Considering the pressure on both sides of the company's revenue and costs, the company's EPS forecast for 2022-24 was lowered to 0.02/0.09/0.19 yuan (originally 0.81/0.83/0.87 yuan), corresponding to net profit of 2.04/884/1,772 billion yuan, respectively. Considering sector valuation adjustments, refer to similar companies that gave the company 0.5 times PB in 22 for valuation. The target price was lowered to 3.18 yuan (originally 4.55 yuan), and the “increase in holdings” rating was maintained.
Short-term performance is under pressure and is expected to gradually recover later. Overall demand has been weak since '22, and steel prices have fluctuated and declined; although raw material prices have declined somewhat after a sharp rise, the overall price drop was lower than the price drop for raw materials, which continued to squeeze the company's profit margin. At the end of the 1-3 quarter '22, the company's gross margin was 7.26%, 5.24%, and 2.46% respectively. The company's gross margin continued to decline, and short-term performance was under pressure. However, we believe that in the context of steady growth, steel demand remains resilient, and the company's profit in the steel sector is expected to gradually recover.
The product structure has been optimized, and the silicon steel business is developing rapidly. The company's automotive steel product development will develop in the direction of ultra-high strength and hot galvanizing, and the product structure is expected to continue to be optimized. In addition, the company achieved breakthroughs in silicon steel products in '22: the yield rate of oriented silicon steel increased by 10.5 percentage points compared to '21; new breakthroughs were achieved in the development of unoriented silicon steel products and customer recognition. In the future, silicon steel is expected to contribute more growth to the company's performance.
Explore clean energy efficiency to reduce energy consumption, reduce costs and increase efficiency. In '22, the company traded 2.5 billion kW·h of clean energy, an increase of 2.18 billion kw·h over '21, reduced electricity purchase costs by 170 million yuan, and reduced CO2 emissions by 48,000 tons. By adjusting the energy structure, the company can reduce energy consumption costs while improving its own sustainable development capabilities.
Risk warning: Prices of raw materials have risen sharply; demand for steel has dropped sharply.