Core focus: Analysis of valuation methods for asset-heavy and high-cycle industries and their application in the valuation of steel companies. Against the backdrop of stable industry demand and low production costs of the company, the company is in a state of significant undervaluation and has good strategic investment value.

Steel demand has entered a period of stability, and the company's costs are at a low level. Judging from long-term data from developed countries such as the United States, Japan, and Germany, crude steel production showed a rapid growth trend with economic growth and the early stages of urbanization, then entered a stage of deceleration growth after the urbanization rate exceeded half of the time, and waited to enter a period of maturity after entering the peak period. Due to its basic economic characteristics, the steel industry generally showed some characteristics of a long industrial life cycle, and production and consumption were stable over a long period of time; the domestic steel industry is in the early stages of maturity, or in a transition period from technical maturity to product maturity. Judging from per capita steel production and apparent consumption of crude steel per capita, at present, domestic crude steel people The average data is close to or has reached the high value level of comparable countries, and there is little probability that crude steel production and demand will fall sharply in the future. With the help of the significant cost advantages of the domestic long-term process and continuous product structure optimization, domestic steel companies are expected to usher in a long-term stable demand market. Judging from the four dimensions of unit labor, unit depreciation, management and capital utilization efficiency, and tonnes of steel profit, Valin Steel's cost position, all of which are at a low level in the industry, and have continued to improve.

The company's valuation is in the underestimation stage, and the recovery in industry sentiment is expected to drive continued valuation recovery. Judging from the ratio between the market value of comparable companies and the original value of fixed assets, generally speaking, between 40%-60% of the original value of fixed assets is a relatively common and reasonable valuation area. Considering the financial leverage ratio adopted in normal operations, with regard to the characteristics of the steel industry's heavy assets and high volatility, most steel companies have entered an undervalued position in the 30% region. Judging from the current valuation ratio situation, although the valuation position of most steel companies has improved from the low value level in 2022, it is still generally underestimated. It is far from the upper valuation limit for the year when the economy falls back and the valuation limit for the year when the boom rises, and has significant investment value. Among them, the historical valuation level center of Valin Steel is around 0.42 times, while the high value is around 0.61 times. Currently, it is only 0.32 times. The recovery in industry sentiment in the future is expected to drive continued upward recovery in valuations.

Investment suggestions: The company focuses on board manufacturing, benefiting from improved product structure, and its profit has shown stable and positive characteristics. Referring to the company's valuation changes over the past three years, we believe that there is clear room for restoration in the company's valuation. The central valuation area in the past three years corresponds to a market value of about 50.9 billion, and the high-valuation area corresponds to a market value of about 72.9 billion yuan, covering it for the first time, giving it a “buy” rating.

Risk warning: Prices of upstream raw materials have risen sharply, demand for steel falls short of expectations, and there is uncertainty about new business development.