Introduction to this report:
As the company's new electrical steel production capacity continues to be released in the second half of 2023, the company's product structure is expected to continue to be optimized and profitability is expected to increase.
Key points of investment:
Maintain the “increase in holdings” rating. 2023H1 achieved revenue of 57.368 billion yuan, a year-on-year decrease of 9.2%; net profit of 401 million yuan, a year-on-year decrease of 77.1%; performance was in line with expectations. Maintain the 23-25 return net profit forecast of 1,246/18.90/2,486 billion yuan, corresponding to an EPS of 0.16/0.24/0.32. Considering that the second half of the year will switch with the off-peak season, demand is expected to pick up, and industry profits will recover. Refer to similar companies that gave the company 0.8 times the PB valuation in 23 years, raise the target price to 5 yuan (originally 4.45 yuan), and maintain the “increase in holdings” rating.
The product structure continues to be optimized, and profitability is expected to gradually increase. The total steel output of 2023H1 is about 11.72 million tons; of these, the output of strategic and key products such as automobile plates, electrical steel, tinned plates, cold-rolled special steel, and hot-rolled pickling plates was 7.74 million tons, accounting for 66% of the total output, an increase of 4 percentage points over the previous year. In April 2023, the company built the world's first 100% thin, highly magnetic-oriented electrical steel production line, with a production capacity of 90,000 tons/year. The production capacity of this production line will continue to be released in the second half of the year. The company's product structure is expected to continue to be optimized, and profitability is expected to gradually increase.
Continuing to reduce costs and increase efficiency, the balance ratio continues to decline. The company comprehensively promoted process, technology, and management cost reduction. The railway costs of 2023H1 Qiangang Company and Jingtang Company decreased by 14% and 12%, respectively, over the same period last year. Furthermore, the company's balance ratio continued to decline. As of the end of the second quarter of '23, its balance ratio was 62.72%, a further decrease of 2.31 percentage points from the end of '22, which helps the company continue to reduce financial expenses.
The Group's iron ore continues to expand, and the supply of raw materials is guaranteed. Shougang Group has an annual production capacity of 4 million tons of iron ore from domestic water plants and Xingshan iron ore, and 20 million tons of foreign-controlled Peruvian iron ore iron ore powder; in addition, the annual production capacity of iron ore iron ore powder in Macheng, which is under construction, is 7 million tons. After completion and commissioning, the company's ability to guarantee iron ore resources will be further improved.
Risk warning: Downstream demand is weakening, and raw material prices are rising sharply.