Introduction to this report:

The company's 2022 Q4 performance is in line with expectations. The company's silicon steel fund-raising project was put into operation in 23-25, and production increased steadily. Through technological reform, the company continuously optimizes the grade structure of existing silicon steel production lines, and the company's profitability will continue to rise.

Key points of investment:

Maintain an “increase in holdings” rating. The company achieved revenue of 2,526 million yuan in 2022, an increase of 30.68% over the previous year, and achieved net profit of 298 million yuan, an increase of 67.34% over the previous year; Q4 achieved net profit of 96 million yuan in the single quarter, an increase of 56.03% over the previous year. The company's fourth quarter results were in line with expectations. Maintaining the company's 2023-24 EPS forecast of 1.21/1.58 yuan, the new 25-year EPS forecast was 2.02 yuan, and the corresponding net profit attributable to the mother was 402/527/672 million yuan respectively. Maintain the target price of 32.9 yuan and maintain the “increase in holdings” rating.

Sales of orientated silicon steel have been rising steadily, and production is expected to continue to be released. In '22, the company sold 115,500 tons of silicon steel, an increase of 16,900 tons; the average price of orientated silicon steel was 12,900 yuan/ton, an increase of 2,513 yuan/ton over the previous year. The gross profit per ton was 3,112 yuan/ton, an increase of 1,288 yuan/ton over the previous year. The company's investment of 80,000 tons of high-end magnetic materials is progressing steadily. According to the announcement, the company expects to partially start production and add 20,000 to 30,000 tons of production capacity in June '23. The project will be fully put into operation in June '24 and contribute 50,000,000 tons of additional production capacity. The company's silicon steel production will continue to rise, driving the company's performance to continue to rise.

Optimize the grade structure of silicon steel and actively expand new fields. The company actively promoted innovation in the high magnetic induction silicon steel process, made technical modifications to the existing 50,000 ton low loss high magnetic induction silicon steel production line, and broke through the production of the 23QH080 grade. We expect the project to further enhance and optimize the company's grade structure. In addition, the company is actively expanding into new fields and is currently studying how silicon steel processing residues can be used as raw materials for soft magnetic powder to create new profit growth points.

Power grid investment drives demand, and demand for high-grade silicon steel is growing even faster. In the context of increased investment in the “14th Five-Year Plan” power grid and energy efficiency upgrades for transformers, we expect that downstream demand for silicon steel will continue to increase, and that demand for high-grade silicon steel will exceed that of the industry.

Risk warning: The progress of fund-raising projects falls short of expectations; there is a risk of a sharp decline in power grid investment.