Introduction to this report:
The company's cost advantage is remarkable; in 2023, against the backdrop of weak steel demand and continued pressure on industry profits, the company's profit level rebounded quarter by quarter and remained at the leading level in the industry.
Key points of investment:
Maintain the “Overweight” rating. The first three quarters of 2023 achieved revenue of 19.69 billion yuan, a year-on-year decrease of 19.02%; net profit of 587 million yuan was realized, with net profit of 587 million yuan, a year-on-year decrease of 49.97%, and the third quarter results slightly exceeded expectations. However, considering that industry demand is still weak, the cost side continues to be under pressure. Net profit for 23-25 was lowered to 8.95/10.12/1,168 billion yuan (previously 15.71/17.53/2,012 billion yuan), corresponding to EPS 0.38/0.43/0.50 yuan (previously 0.67/0.75/0.86 yuan). Referring to similar comparable companies, the company was given a valuation of 1.6 times PB, corresponding to the target price of 5.76 yuan (previously 6.96), maintaining the “increased holdings” rating.
The company's profit level has rebounded quarter by quarter, leading the industry in profitability. In the first three quarters of 2023, the company's steel production and sales volume were 302.92 and 3,028,700 tons, down 4.35% and 4.16% from the previous year. In the first to third quarters of 2023, the company's gross profit per ton of steel was 312.15, 403.80, and 460.97 yuan/ton; net profit per ton of steel was 135.39, 157.08, and 273.50 yuan/ton. Against the backdrop of weak demand and continued pressure on industry profits, the company's profit level rebounded quarter by quarter and maintained industry leadership, depending on its excellent cost management capabilities.
The cost advantage is remarkable, and the product structure is optimized. The operating cost of a ton of steel of 2023Q3 company was 5245.43 yuan/ton, a decrease of 32.52% over the previous month; the three-ton steel fee was 91.47 yuan/ton, a decrease of 49.48% over the previous year. The company's low cost advantage was remarkable. The company adheres to a differentiated development path, optimizes product structure, continues to develop spring flat steel, and successfully develops products such as high-strength steel bars, which is conducive to enhancing its profitability and market competitiveness.
Improve the supply chain layout to help the company further reduce costs and increase efficiency. In May '23, the company used its own capital to acquire 100% of Fangda Guomao's shares held by the related party Tianjin Yishang; in August '23, the company's wholly-owned subsidiary, Nanchang Seagull, used its own capital to establish a wholly-owned subsidiary company, Lanzhou Changli. Fangda Guomao and Lanzhou Changli will help improve the company's ability to allocate resources, further reduce costs, and improve economic efficiency.
Risk warning: Steel demand has declined sharply; raw material prices have risen sharply.