In line with market changes, Valin Steel became a pioneering steel company in the industry
Valin Steel has been deeply involved in the steel industry for more than 20 years. Its products cover steel products such as wide and thick plates, hot-rolled coils, wire bars, rebar, rebar, and seamless steel pipes. The downstream sector covers steel for the manufacture of energy, ships, automobiles, construction machinery, etc., as well as construction steel for real estate and infrastructure. In the first three quarters of 2023, the company's revenue was 12.072 billion yuan, -3.66% year on year; net profit to mother was 4.105 billion yuan, -20% year-on-year, showing strong resistance to cyclicality, and performance was at the leading level of the industry.
Steel industry: supply is gradually being cleared, and there is still room for demand
Demand side: Real estate has limited room to decline, and there is still room for policy improvement. Since the second half of 2023, national policies to support real estate have been frequent, and adjustments to the real estate market have been unprecedented in strength and breadth. There is still room for future increases in real estate policies. It is expected that the industry will have limited room to decline, and demand for steel for real estate may improve.
Supply side: It is strictly prohibited to add additional production capacity to support steel prices. In the context of strict control of the steel industry, the advantages of green upgrading of the company's production line equipment stand out. In response to national policies and environmental protection requirements, the subsidiary Valin Liangang invested 1.07 billion yuan and 550 million yuan respectively to build and implement the energy saving and environmental protection upgrading project for iron smelter sintering machines and the environmental protection transformation and upgrading project for the old integrated material yard of the iron mill. The company's low-carbon environmental protection technology reform route is expected to continue to benefit under strict countercontrol policies.
High-end product structure, firm “PUZT” development path
Against the backdrop of a general decline in demand for general steel in the real estate industry, the company's annual sales volume bucked the trend. In 2022, 15.88 million tons of key types of steel were sold, accounting for 60% (up 5 pcts from 2021). With the company's product structure “normal conversion”, the share of high-end grade steel continues to rise, driving the company's steel tonne price to continue to rise. In 2022, the company's tonne steel price was 5,976 yuan/ton, which is at a high level in the industry.
In 2022, the company's automotive steel sales volume was 2.9 million tons, accounting for 18.3% of the company's grade steel sales, leading the sales volume of grade steel. The subsidiary VAMA Auto Board Company took advantage of the rapid development of China's automotive industry and achieved operating revenue of 10.041 billion yuan (+7.3% YoY) and net profit of 1,652 billion yuan (+168.99%) in 2022, all of which reached record highs.
The subsidiary Hunan Liangang Electromagnetic Materials Project is being built in two phases and four steps. It is expected that all projects will be put into operation by the end of 2025. Valin Liangang will have an annual production capacity of about 500,000 tons of finished silicon steel products, including 400,000 tons of unoriented silicon steel products and 100,000 tons of oriented silicon steel products. After completion, Liangang Steel will form the largest silicon steel production base in the central region, mainly in application fields such as new energy vehicles, home appliances, and intelligent manufacturing.
Investment advice
As a leading enterprise in the steel industry, the company actively promotes structural upgrading of products, and “PUZT” enhances the company's profitability. We expect the company's net profit to be 63.4/72.0/8.96 billion yuan in 2023-2025, respectively, and the corresponding PE is 5.37/4.72/3.80 times, respectively. For the first time, coverage is given a “buy” rating.
Risk warning
Prices of iron ore, coking coal and coke fluctuate greatly; demand for steel falls short of expectations; construction of new projects falls short of expectations, etc.