The main steel industry is steady, and the four-yuan chain has increased profits. In 2023, against the backdrop of weak industry demand and relatively strong raw fuel prices, the company made full use of variety optimization and product exports to improve profitability, deepen cost reduction and efficiency, and take advantage of the “integrated four-yuan, one-chain” advantage. The profit performance was clearly superior to that of the industry. Operating revenue for the year was 72,543 billion yuan; net profit to mother was 2.125 billion yuan, a year-on-year decrease of 1.67%.

The product structure has been upgraded, and the profitability is strong. The company adheres to the innovation drive of science and innovation. In 2023, R&D expenses reached 2.402 billion yuan, accounting for 3.31% of revenue, and some of its leading products in the country. With long-term accumulation, the company's high-value-added products increased. In 2023, the company's sales volume of advanced steel materials reached 2.5879 million tons, a sharp increase of 25.15% over the previous year. The price of a single ton was 5972.81 yuan/ton, and the gross profit per ton was 957.53 yuan/ton, all of which were significantly superior to the average of the company's other steels, making an important contribution to the company's steady performance.

The coke project is progressing steadily. Indonesia's Jinrui Renewable Coke Project has all 4 coke ovens in operation. In 2023, it achieved sales volume of 1.466 million tons and achieved net profit of 139 million yuan, which translates to a net profit of 95.2 yuan/ton per ton, which is clearly superior to the average profit situation of independent domestic coking companies. Indonesia Jinxiang New Energy's 3.9 million ton coke project, 2 #焦炉已投运，其余焦炉及其配套设施正在按序推进施工。

Shareholding changes, empowered by CITIC. In December 2023, Xinye Steel completed the registration procedures for capital increase and industrial and commercial change of Nangang Steel Group, and the actual controller of the company was changed to CITIC Group. In January 2024, Xinye Steel's comprehensive tender offer to acquire the company's shares was completed. Xinye Steel directly and indirectly held a total of 62.76% of the company's total share capital. CITIC Special Steel is a leading special steel company in China. It has outstanding technical advantages and strong cyclical resistance. It is expected to empower the company and exert synergistic effects in the future.

A high percentage of cash dividends are returned to shareholders. The company plans to distribute a cash dividend of 2.5 yuan (tax included) to all shareholders for every 10 shares, totaling 1,541 billion yuan (tax included), accounting for 72.52% of the net profit attributable to common shareholders of listed companies in the 2023 consolidated statements. The dividend ratio is 5.4% at current stock prices. The company also formulated a shareholder return plan for 2024-2026, proposing that the total amount of cash dividends to be distributed by the company for each of the next three years (including cash dividends already distributed in the medium term) should not be less than 30% of the net profit attributable to shareholders of listed companies for that year. It is also proposed to change the dividend cycle to half a year.

Risk warning: Demand side declined beyond expectations; production control fell short of expectations; raw material prices fluctuated beyond expectations; project construction progress fell short of expectations.

Investment advice: The company is an established leading enterprise for medium and heavy plates. Special steel long materials are developing steadily, and the coke project is progressing in an orderly manner. Stable performance and high dividends. We expect the company's 2024-2026 revenue of 780.8/820.6/88.52 billion yuan; net profit to mother of 23.9/25.0/2.73 billion yuan, a year-on-year growth rate of 12.4%/4.8%/8.8%; diluted EPS of 0.39/0.41/0.44 yuan. The current stock price corresponds to PE of 11.9/11.3/10.4x, maintaining an “overstock” rating.