Introduction to this report:
2023H1's performance fell slightly short of expectations. The company's output has increased, but the weakening demand for steel has led to a decline in steel prices. Combined with a limited decline in raw material prices, the company's profit continues to be under pressure. As demand gradually picks up, the company's profit is still expected to pick up.
Key points of investment:
Maintain the “increase in holdings” rating. 2023H1 achieved operating income of 19.599 billion yuan, an increase of 9.75% over the previous year; net profit from the previous year was 3.149,900 yuan, a year-on-year decrease of 98.57%, and the company's performance was slightly lower than expected. Considering weak demand and pressure on the cost side, the net profit forecast for 23-25 was lowered to 0.37/3.17/610 million yuan (originally 385/1,061/1,225 million yuan), and the corresponding EPS was 0.02/0.13/0.25 yuan (originally 0.16/0.44/0.51 yuan). Referring to comparable companies, the valuation was 0.9 times PB in 23 years, the target price was lowered to 3.43 yuan (originally 3.79 yuan), and the “increase in holdings” rating was maintained.
2023H1 production continues to rise, and earnings continue to be under pressure. 2023H1's iron, steel, and material production was 352.8, 4284, and 4.303 million tons, respectively, up 28%, and 33% from the previous year; the company's output increased, but the weakening demand for steel led to a decline in steel prices, compounded by a limited decline in raw material prices. The company's profit continued to be under pressure. 2023H1's gross profit per ton of steel was 117.57 yuan/ton, down 59% from the previous year. As demand gradually picks up, the company's profit is still expected to pick up.
It is deeply involved in the South China and East China markets, and has a high level of brand recognition. The company's main products include building materials, industrial wire, medium and heavy plate, and special steel. 2023H1 accounts for 37%, 21%, 16%, and 9% of revenue, respectively.
Among them, the company's building materials products are deeply involved in the South China market, and brand recognition is high; wire materials are mainly in the South China and East China markets, market development continues to deepen, and the brand is gradually being recognized; although the scale of medium and heavy plate is small and variety specifications need to be optimized, it still has some market competitiveness in terms of quality, service, brand, etc.; the downstream special steel industry shows that the north is strong and the south is weak, and the company's location advantage is slightly weak.
The company is located in an area with a net inflow of steel and enjoys a location advantage. According to the company's announcement, the annual demand for steel in Guangdong Province exceeds 60 million tons, but the output is less than 40 million tons, with an annual gap of more than 20 million tons.
As a leading long-material steel enterprise in Guangdong Province, the company enjoys certain regional market advantages.
Risk warning: Prices of raw materials have risen sharply; demand has picked up less than expected.