Incidents:
On March 25, 2024, Guangzhou Steel Gas released its 2023 annual report: in 2023, the company achieved operating income of 1,835 billion yuan, a year-on-year increase of 19.20%; realized net profit to mother of 320 million yuan, an increase of 35.73% year on year; realized deducted non-net profit of 309 million yuan, an increase of 39.09% year on year.
Investment highlights:
The commissioning of the new project led to an increase in the revenue of bulk electronics and on-site gas production. In 2023, the company achieved revenue of 1,835 billion yuan (YoY +19.20%). The growth was mainly due to the successive gas supply for large-scale electronics construction projects and the continued increase in helium market development. By product classification, electronic bulk gas revenue was 1,211 billion yuan (YoY +25.14%, accounting for 65.96%), gross margin was 39.10% (YoY 5.42pct); general industrial gas revenue was 515 million yuan (YoY +15.60%, accounting for 28.03%), and gross margin was 24.35% (YoY 5.05pct). According to the sales model, on-site gas production revenue was 840 million yuan (YoY +41.42%, accounting for 45.78%), gross margin was 41.42% (YoY+1.44pct); retail gas supply revenue was 885 million yuan (YoY +4.33%, accounting for 48.22%), and gross margin was 28.31% (YOY-11.30pct).
The industry is leading in production capacity for new electronic projects that have won bids. According to data from Zhuochuang News, in 2023, the company's electronic bulk gas business reached 11.75% of the domestic market share in terms of revenue; the domestic market share of production capacity meters that won the bid for new projects in the field of integrated circuit manufacturing and semiconductor displays reached 24.60%, second only to liquefied air (24.80% share). The new projects include Xi'an Xinxin, Guangzhou Guangxin, Shenzhen SPC, and Beijing Xilex, further consolidating its leading position in domestic investment.
The cost control effect was obvious, and the net interest rate increased year on year. In 2023, the increase in the company's helium procurement costs led to a year-on-year decline of 3.22pct to 35.06% in gross margin. Sales and management expense ratios decreased by 0.72 pct/0.02 pct to 2.10%/8.71%, respectively; investment in helium gas supply chain technology increased by 0.18 pct to 4.84%; financial expenses fell sharply by 0.80 pct to 0.70%, mainly due to the company's use of some idle capital to purchase term deposits, which led to some interest income. In 2023, the company's net profit margin increased 1.96pct year-on-year to 17.42%.
The profit forecast and investment rating took into account the large fluctuations in gas prices. We slightly lowered the company's net profit from 2024/2025/2026 to 3.54/456/612 million yuan, corresponding PE to 38/29/22 times, respectively. However, since the company has formed autonomous and controlled technical capabilities around the complete helium supply chain and became the first domestic gas company to enter the global helium supply chain, the barriers are high, and we are optimistic about the company's subsequent long-term development, so we maintain the “increase in holdings” rating.
Risks indicate that downstream customers' gas consumption falls short of expectations; the risk of a sharp drop in gas supply prices; the construction progress of projects under construction falls short of expectations; the risk of large fluctuations in stock prices in the secondary market; the risk of declining market share of core resources; and the risk of falling gross margin.