23H1's net profit turned negative year on year, maintaining the “increase in holdings” rating
The company's 23H1 achieved revenue of 23.27 billion yuan (yoy -12.7%), net profit of -173 million yuan (year-on-year loss), slightly higher than the company's performance forecast (2023-020) of -187 million yuan; 23Q2's net profit to parent was -107 million yuan. We maintain our profit forecast. We expect the company's EPS to be 0.24/0.29/0.35 yuan respectively in 23-25. Comparable company Wind unanimously expects PB (2023E) to be 0.61x, giving the company a valuation of 0.61xPB (2023E), corresponding to a target price of 5.42 yuan (previous value of 5.33 yuan), maintaining the “increase in holding” rating.
The steel industry was still under pressure in the first half of the year, and the gross margin of the company's steel products was -3.23 pct year-on-year
According to the company's semi-annual report, 2023H1 achieved crude steel production of 5.681 million tons (yoy +4.52%), completed 50.4% of the annual plan, produced 5.5094 million tons of steel (yoy +4.84%), and completed 51.3% of the annual plan. The average steel price of 2023H1 company is 3,634 yuan/ton (yoy -11.1%), gross profit per ton of 208 yuan/ton (yoy-158 yuan/ton), and the gross profit margin of the steel business is 5.72% (yoy-3.23pct). Overall, in the first half of 2023, downstream demand in the steel industry was weak overall. Steel prices fell year on year, while prices of raw materials such as iron ore were relatively strong, and the company's gross margin declined year on year.
The cost ratio for the period was +1.71 pct year on year, and the balance ratio rebounded
According to the company's semi-annual report, 23H1's gross sales margin was 5.10% (yoy-2.33pct). The cost rate for the period is 6.04% (yoy+1.71 pct), of which the management cost rate is 1.63% (yoy+0.38 pct), the R&D expense rate is 3.66% (yoy+1.1 pct), and the financial cost rate is 0.64% (yoy+0.24 pct). During the reporting period, the company actively promoted the construction of transformation and upgrading projects, and promoted greening and digital transformation. The balance ratio was 58.42%, up from 53.78% at the end of 2022, with bank borrowing increasing over the same period.
In mid-August, iron ore prices were better than steel, and steel moved from focusing on equal control to paying more attention to changes in demand
According to a report by Mysteel on August 15, Jiangsu, Henan, and Tianjin are gradually implementing leveling control requirements for crude steel, but at present the implementation of level control policies is poor. According to the China Steel Association, in mid-August, key steel companies produced 2,215 million tons of crude steel per day, an increase of 2.89% over the previous month, and supply pressure increased. The market is beginning to shift from focusing on the supply side to paying more attention to the introduction and implementation of various economic stimulus packages. Looking at it later, if the enforcement of crude steel leveling control remains weak, then the price trend of iron ore may be stronger than that of steel, and the possibility of a further increase is not ruled out; otherwise, steel prices will be better than iron ore, and steel profits are expected to show an expansion trend. According to the Citigroup China Unexpected Economic Index, as of August 23, the index had gradually converged from -54.6% on August 15 to -51.9%, which may indicate that market sentiment is gradually recovering.
Risk warning: Downstream demand falls short of expectations, raw material prices fluctuate greatly, and production capacity release falls short of expectations