Introduction to this report:
The company's performance in 2022 fell slightly short of expectations. The company's cost advantage is remarkable. In the face of a general year-on-year decline in steel company performance in 2022, the company's profit level is still leading the industry. As demand recovers in 2023, the company's performance is expected to pick up again.
Key points of investment:
Maintain an “increase in holdings” rating. Revenue in '22 was 23.239 billion yuan, up 7% year on year; Guimu's net profit was 926 million yuan, down 66% year on year, and performance was slightly lower than expected. Considering the continued pressure on the cost side, the EPS forecast for 23-24 was lowered by 0.67/0.75 yuan (previously 0.84/0.96 yuan), and the 25-year EPS forecast was increased by 0.86 yuan, corresponding to net profit of 15.71/17.53/2,012 billion yuan. However, considering the restoration of leading valuations, reference is that similar companies gave 1.72 times PB valuation in '23, maintained the target price of 6.96 yuan, and maintained the “increase in holdings” rating.
The 2022 results are under pressure in the short term, and the 2023 results are expected to pick up again. Affected by factors such as the epidemic and changes in the international situation in 2022, steel demand was generally weak, and falling steel prices compounded high costs, squeezing the company's profit margins. The company's steel production and sales volume in 2022 were 4.35 million tons, of which production fell 1.53% year on year and sales fell 1.64% year on year; the company's gross profit per ton of steel was 451 yuan/ton, a sharp drop of 54% year on year. In 2023, we expect steel demand to gradually recover, and the company's profit level and performance are expected to rise again.
The cost advantage is significant, and profitability is leading the industry. In '22, when the profits of the entire steel industry were under pressure, although the company's profit level declined year-on-year, its tonnage profit level still ranked among the highest in the industry, mainly due to its excellent cost management ability, and the company's low cost advantage was remarkable. Furthermore, the company adheres to a differentiated development path, continuously optimizes its own product structure, continues to develop spring flat steel products, and successfully develops high-strength steel products, which is conducive to enhancing the company's profitability and market competitiveness.
Participate in the establishment of a steel industry fund to follow the trend of industry mergers and integration. The company participated in the establishment of the Nanchang Huxu Fund. The total amount of funds pledged was 12 billion yuan, and the company invested 4 billion yuan as a limited partner. The fund mainly invests in equity in the steel industry, which helps the company make use of the advantages and resources of all parties and adapt to the situation of mergers and integration in the steel industry.
Risk warning: The recovery in steel demand fell short of expectations; raw material prices have risen sharply.