Core views

At the end of 2023, New Metallurgical Steel held Xinnan Steel Group. CITIC Group achieved control over Nangang Steel Co., Ltd., and Nangang Steel Co., Ltd. was officially integrated into the CITIC Group central enterprise system. The company has planned a 6.5 million ton coke project in Indonesia's Qingshan Industrial Park, corresponding to an equity of 4.017 million tons. According to the current net profit level of 100 yuan per ton, the annual profit is expected to be more than 400 million yuan after full production. Furthermore, the company's long materials sector is expected to benefit from the collaborative development of CITIC Group's new materials sector, and profit levels are expected to increase.

The company's historical dividend payout ratio was high, with a dividend payment rate of 71% in 2022. Assuming that this dividend payment rate is maintained in 2023, the dividend amount can reach 1.5 billion, and the corresponding dividend rate is 6.4%. High dividends build investment defense.

Report summary

The actual controller change ushered in a new chapter of development.

At the end of 2023, New Metallurgical Steel held Xinnan Steel Group and CITIC Group achieved control of Nangang Steel shares, and Nangang Steel Co., Ltd. officially became a state-owned enterprise. Meanwhile, the Jiangsu Provincial Department of Finance and the Nanjing Municipal State-owned Assets Administration Commission are still important shareholders of the company. Nangang Steel Co., Ltd. is not only a key development direction of advanced materials in the five major sectors of the CITIC Group, but also a leading enterprise in the steel industry cluster, which is one of the four pillar industries in Nanjing. Under the cooperation of the central government and local authorities, both important shareholders will inject vitality into the development of the enterprise.

The project is progressing steadily, and future growth rates can be expected.

The company has planned a 6.5 million ton coke project in Indonesia's Qingshan Industrial Park, cooperated with companies such as Qingshan and Xuyang, and has an equity of 4.017 million tons. Indonesia's Jinrui achieved sales volume of 1.0684 million tons in the first three quarters of last year, with a net profit of 103 million yuan and a net profit of about 100 yuan per ton. According to this profit estimate, the Indonesian coke project will bring 400 million yuan in profit after full production.

Complements the advantages of CITIC Special Steel and develops collaboratively.

In the new materials sector of the CITIC Group, CITIC Special Steel is a leading enterprise in the field of special steel long materials. The company excels in special steel sheets, and the product structures of the two are highly complementary. The core production bases of the company and CITIC Special Steel are all located in Jiangsu Province and are distributed along the Yangtze River, so there is strong regional synergy.

The variety is complementary and the region is close, and the main steel industry of the company is expected to be highly profitable in collaboration between the two parties.

After entering CITIC Group's procurement and sales channels, the company's long materials sector has benefited the most, and profit levels are expected to increase.

High dividends build investment defense.

The company's historical dividend payout ratio was high, with a dividend payment rate of 71% in 2022. Assuming that the dividend payment rate is maintained in 2023, the dividend amount can reach 1.5 billion, and the corresponding dividend rate is 6.4%. High dividends build investment defense.

Profit forecast and investment advice: Assuming that the coke project is completed, the company's profit for 2023 to 2025 will be RMB 2,118 billion, RMB 2,497 billion, and RMB 3,022 billion, respectively. Maintain an “Overweight” rating.

Risk analysis: Currently, under the complex and severe market situation, the steel industry is facing many difficult challenges. Strong market supply and demand are weak, and operations are divided among enterprises.

On the demand side, in an environment where the real estate industry continues to be sluggish, the recovery in the manufacturing industry is still not obvious. Overseas demand and overseas steel prices are on a downward trend, which has had a certain impact on exports of steel products.

The construction site of the company's coke project is located in Indonesia. It may be affected by Indonesian and Chinese political factors, and the project has certain anti-dumping risks.

In recent years, risk incidents on the supply side of raw materials have continued. The collapse of the Vale dam, the Australian coal import ban, the torrential rain in Brazil, the Australian hurricane, and the energy crisis caused by geopolitical conflicts. Under the continuous interpretation of various risk events, raw material prices have continued to rise. Steel mills have been squeezed to the limit, and profits of steel mills have been squeezed to the limit.

The basic assumption in this report is that the price of coke is 2,800 yuan/ton in 2024, with equity sales of about 2.74 million tons. If there is a big difference between actual sales price and sales volume, it will have a big impact on profit forecasts.