Introduction to this report:
As demand in infrastructure and other fields picks up, production capacity for the company's new investment projects is released, and operations are gradually on the right track, the company's profits are expected to rise significantly.
Key points of investment:
Maintain an “increase holdings” rating. In 2022, 2023Q1's revenue was 67.414.4 billion yuan, up 0.74% year on year, down 5.48%; the net profit of the mother was 297,214 million yuan, down 52% and 64% year on year; the performance was in line with expectations. Considering that the recovery in demand led to a recovery in the company's profit, the 23-24 return net profit forecast was raised to 881/1,062 million yuan (originally 602/666 million yuan), and the net profit forecast for the additional 25 years was 1,212 billion yuan, corresponding to the EPS of 0.62/0.74/0.85 yuan. Referring to comparable companies, the company was given 13 times the PE valuation in 23 years, and the target price was raised to 8.06 yuan (originally 7.17 yuan), maintaining the “increase in holdings” rating.
Weak demand affects short-term profits, and the scale of production and sales continues to expand. The company's steel pipe production and sales volume in 2022 were 2010.9 and 136.315 million tons respectively, up 10.33% and 12.97% respectively; however, due to the weak overall demand for steel, which affected the company's short-term efficiency, the company's gross profit per product in 2022 was 95 yuan/ton, down 32.09% from the previous year. As demand picks up in infrastructure and other fields in 2023, the company's operating efficiency is expected to gradually pick up.
In recent years, the production capacity of newly invested projects has rapidly reached stable production, and profits are expected to gradually increase. The company Jiangsu Youfa has successfully reached production, with process output exceeding 3 million tons and achieving profit; the operation of Tangshan's new building materials, coiled scaffolding and square pipe divisions are on the right track; special pipes such as Huludao steel pipes, oil and gas pipes, and tower pipes are operating smoothly; Pipeline Technology's 10,000-ton stainless steel water pipe project has stabilized production, while another 20,000 ton stainless steel industrial pipe project is under construction. As the operation of new investment projects gradually gets on the right track, the company's profit is expected to increase significantly.
Actively expand the market, and the leading low position continues to be consolidated. The company is the leading manufacturer of welded pipes in China, with the highest production and sales scale in the country for 17 consecutive years. The company continues to expand new markets, including large diameter socket spiral welded pipes of more than one meter and pipes for high-steel grade pipelines to achieve batch supply; it has developed and produced large wall thicknesses and ultra-thin walls, high-strength rectangular tubes with ultra-small and ultra-large extreme specifications, round pipes, etc. The company's market share will continue to increase, and its leading position will continue to be consolidated.
Risk warning: Demand recovery fell short of expectations, and raw material prices rose sharply.