Incident: The company recently released its 2023 annual report, achieving full year revenue of 72.54 billion yuan, +2.7% YoY; net profit to mother of 2.13 billion yuan, -1.7% YoY. Looking at the fourth quarter of a single quarter, the company achieved operating income of 16.18 billion yuan (-10.2%) and realized net profit of 450 million yuan (+444.1%) to mother.

The variety structure is continuously optimized, and the gain effect of high-end products is remarkable. In 2023, the company continued to optimize the variety structure, with a year-on-year increase of 412 million yuan. Total steel sales in 2023 were 10.324,400 tons, including 1.759 million tons of alloy steel bars, up 5.49% year on year, 521,000 tons of alloy steel wire, down 7.71% year on year, 730,700 tons of alloy steel strip, up 30.46% year on year, sales of medium and heavy plate sales of 5.256,400 tons, up 5.34% year on year, and sales of steel bars in construction were 2,0593 million tons, up 4.65% year on year. Among them, the company's sales volume of advanced steel materials was 2.5879 million tons, up 25.15% year on year; accounting for 25.06% of total sales of steel products, accounting for an increase of 3.85 percentage points; comprehensive average sales price of 5,972.81 yuan/ton (excluding tax); gross profit margin was 16.03%, up 0.26 percentage points year on year; total gross profit of 2,478 billion yuan, up 16.66% year on year, accounting for 41.98% of total gross profit of steel products.

Break away from the downward trend in the industry and expand the export volume of high-value-added varieties. In 2023, the company will seize overseas markets and continue to expand the export volume of high-value-added products, export varieties and key high-end customers. The company received 1.25 million tons of export orders, up 28% year on year, and the export volume was 1.2 million tons, up 85% year on year. Both order volume and export volume set a record; the company's steel exports increased 85% year on year, higher than China's steel export average. In '23, the company provided 570,000 tons of high-end steel for 43 international projects including Saudi Aramco oil pipelines, an increase of nearly 44% over the previous year; exports of high-end varieties such as large-walled deep-sea pipelines, high manganese steel, and composite panels achieved a “0→1” breakthrough, entering overseas markets for the first time; deepened cooperation with many leading global companies in the pipeline, wind energy, petroleum, etc., and supplied nearly 190,000 tons of pipeline projects in the Middle East.

Continued steady and high dividends. The company announced its 2023 equity distribution plan. It plans to distribute 2.5 yuan for every 10 shares, for a total cash dividend of 1,541 billion yuan. The cash dividend rate reached 72.52%, continuing the 22-year high cash dividend rate.

According to the company's 23 annual report, we made adjustments such as lowering the sales share of special sheets, lowering the sales price of special sheets and special steel long materials per ton, and increasing the sales price of construction threads. We forecast that the company's net assets per share for 2024-2026 will be 4.46, 4.65, and 4.82 yuan (original forecast values of 4.32, 4.57, and 4.86 yuan for 23-25), respectively. According to the comparable company's PB valuation of 1.27 in 2024, corresponding to the target price of 5.65 yuan, we maintain the purchase rating.

Risk warning

Risk of macroeconomic fluctuations, risk of rising raw material prices, risk of market fluctuations in downstream industries, order volume falling short of expectations, etc.