Core viewpoints

Q3 seamless pipe company due to the adjustment of production and sales specifications declined slightly, welded pipe sales have increased.

Gross profit per ton 7761 yuan (month-on-month +173 yuan). Considering the decline in Q2 seamless pipe sales and the increase in welded pipe sales, the actual gross profit per ton of seamless pipe has increased.

Recently, the Company obtained Saudi Aramco Supplier Certification to sell relevant products to Saudi Aramco in accordance with Saudi Aramco regulations. If the gross profit margin of sales price is formed, it will be significantly higher than domestic sales, so as to improve the overall profitability of the company.

The Company's convertible bond investment project "High-performance stainless steel seamless pipe project with an annual output of 20,000 tons for high-end equipment" has been successfully put into operation, which is an upgrade of the Company's existing product field and an extension of specifications and varieties, complementary to existing Company products, capable of meeting the high-end market demand and replacing imported products. The implementation of the project will be conducive to the company to further explore the market, improve the company's product coverage and market share, and achieve sustainable development of the company.

Event

The company released its third quarter report in 2023.

In the first three quarters, the company realized a total operating income of 2.72 billion yuan, with a year-on-year growth of 33.46%, and a net profit of 273 million yuan, with a year-on-year growth of 90.64%. Among them, Q3 realized net profit of 89 million yuan in a single quarter, down 20% month-on-month.

Brief comment

Production and sales declined, and gross profit per ton increased.

Q3 stainless steel seamless pipe production 14173 tons (ring-1932 million tons), stainless steel welded pipe 9538 tons (ring-114 tons). Q3 stainless steel seamless pipe sales 13351 tons (ring-911 tons), stainless steel welded pipe 8659 tons (ring +1532 tons). Among them, seamless pipe production and sales declined slightly due to specification adjustment, and welded pipe sales increased. Gross profit per ton 7761 yuan (month-on-month +173 yuan). Considering the decline in Q2 seamless pipe sales and the increase in welded pipe sales, the actual gross profit per ton of seamless pipe has increased.

Impairment charges suppress performance.

Q3 The company has withdrawn asset impairment losses of RMB 7 million and credit impairment losses of RMB 10 million, totaling RMB 17 million. Large impairment charges suppress the company's performance release.

Obtain Saudi Aramco qualification certification and expand overseas sales channels for high-end products.

Recently, the Company obtained Saudi Aramco Supplier Certification to sell relevant products to Saudi Aramco in accordance with Saudi Aramco regulations. Saudi Aramco is the world's largest oil producing country. The company has already sold certain products in Saudi Aramco in the early stage. This certification is mainly for high-end products with supply barriers. After obtaining the certification, the company can produce high-end products in Saudi Aramco. Product market formation sales, and other international stainless steel pipe leading such as Sumitomo, Sandvik and other joint participation in bidding. Saudi Aramco's price system is determined by overseas leaders. Compared with domestic prices, Saudi Aramco has obvious price advantages. After the company has supply qualification, if the gross profit rate of sales price is formed, it will be significantly higher than domestic sales, so as to improve the overall profitability of the company.

Ethylene cracking pipe localization is expected to become a new growth point of the company.

In 2022, the company cooperated with SEI to develop ethylene cracking furnace tubes, which are "neck" products, and committed to breaking foreign monopolies. At present, ethylene project investment scale is large, ethylene cracking pipe is expected to become a new profit growth point of the company.

The investment project will be put into production smoothly, and the sales volume and variety structure will further increase.

The project mainly produces stainless steel seamless tubes for boiler tubes, heat exchanger tubes and other high-end equipment, which can be widely used in electric power, petrochemical, high-end equipment and other industries. It is an upgrade of the existing product fields of the Company and an extension of specifications and varieties. It is complementary to the existing products of the Company, which can meet the needs of high-end market and replace imported products. The implementation of the project will be conducive to the company to further explore the market, improve the company's product coverage and market share, and achieve sustainable development of the company.

Earnings forecast and investment recommendations: We forecast the company's net profit attributable to the parent company for 2023-2025 to be 350 million yuan, 500 million yuan and 650 million yuan respectively. The corresponding PE is 12.4, 8.8 and 6.7 times respectively, maintaining the "buy" rating.

Risk analysis: the company's main business is the research and development, production and sales of stainless steel pipes, involving domestic and foreign markets, and its downstream power plant boilers, petrochemical, nuclear power plants, papermaking, medical equipment, marine ships and other key engineering fields have certain links with macro-economy and are affected by macroeconomic fluctuations.

Although there are certain technical barriers to the company's products and the overall application situation is good, if the global macro economy continues to decline, it may cause the company's domestic and foreign orders to decrease and the payment speed to slow down, which will have a direct impact on the company's production and operation. The main raw materials of the company's products are stainless steel round steel and stainless steel plate. Fluctuations in raw material prices directly affect the cost of the company's products, which in turn affects the company's gross profit and net profit levels.