Introduction to this report:
The company's 2023H1 performance fell short of expectations. Demand for steel is weak, steel prices are falling, compounded by a small drop in raw material prices, and the company's profit continues to be under pressure in the short term. 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 revenue of 23.268 billion yuan, a year-on-year decrease of 12.66%, and net profit of the parent to 173 million yuan, a year-on-year decrease of 137.89%. The performance fell short of expectations. Considering weak demand and pressure on the cost side, the company's net profit forecast for 2023-2025 was lowered to 0.46/340/641 million yuan (originally 428/882/1,335 million yuan), corresponding to EPS of 0.02/0.14/0.26 yuan. However, considering the company's optimized product structure, profitability is expected to gradually rise, maintain the target price of 5.67 yuan, and maintain the “increase in holdings” rating.
Production increased year over year, and earnings continued to be under pressure. 2023H1's iron, steel and material production was 485.61, 560.81, and 5.5094 million tons, respectively, up 7.69%, 4.52%, and 4.84% year-on-year respectively. Due to weak demand for steel and falling steel prices, compounded by a small drop in raw material prices, the company's profitability declined somewhat. 2023H1's gross profit margin and net interest rate were 5.1% and -0.73%, respectively, down 2.33 and 2.47 percentage points from the previous year. As demand gradually picks up, the company's profit is still expected to pick up.
Optimize the product structure and increase the proportion of industrial materials. Within the regional market where the company is located, the company is the only enterprise with production lines for medium and heavy plates, high-quality round bars, and H-shaped steel. In recent years, the company is committed to optimizing the product structure, increasing the proportion of industrial materials, and maintaining the differentiated advantages of the regional variety structure. The new H-beam production line built by the subsidiary Luoyuan Minguang was put into operation in May '22, with a design production capacity of 1.3 million tons/year. 2023H1's H-beam accounted for 7.41% of revenue, an increase of 6.06 percentage points over the previous year. The company's industrial materials contribution performance is expected to continue to improve in the future.
The regional steel leader has a premium advantage. The company has a total steel production capacity of 12 million tons/year, and is a leading steel enterprise in Fujian Province. The building materials market share in the province is 48%, the round steel market share is 70%, the medium plate market share is 80%, and the profile steel market share is over 55%; the company strengthens market maintenance and will strive to sell building materials in the province higher than the average price of 10 yuan/ton in the “surrounding four regions”.
Risk warning: Prices of raw materials have risen sharply; the recovery of steel has fallen short of expectations.