Matters:
On March 29, the company released the “2023 Annual Report”. In 2023, the company achieved total operating income of 164.465 billion yuan, a year-on-year decrease of 2.47%; net profit to mother was 5,079 billion yuan, a year-on-year decrease of 20.38%; net profit after deduction was 4.680 billion yuan, a year-on-year decrease of 24.66%. Looking at a single quarter, 23Q4 achieved total operating income of 44.194 billion yuan, a year-on-year increase of 0.91%; net profit to mother of 974 million yuan, a year-on-year decrease of 21.96%; and net profit after deduction of 683 million yuan, a year-on-year decrease of 45.38%.
Commentary:
The product structure continues to improve, and the annual performance shows resilience. In 2023, the company accelerated the restructuring of the production line. The first phase of cold-rolled silicon steel of Valin Liangang was completed step by step, forming a production capacity of 200,000 tons of unoriented silicon steel products and 90,000 tons of semi-finished oriented silicon steel; the VAMA automobile board phase II project was put into operation, adding 450,000 tons of annual production capacity for high-end automotive steel. The successful commissioning of the new production line further increased the company's sales volume of grade steel. In 2023, it achieved a cumulative sales volume of 16.83 million tons of grade steel, an increase of 5.98% over 2022. While overall production remains stable, the proportion of grade steel increased to 63% in 2023. As the overall prosperity of the industry declined, the company's performance showed resilience.
The gross margin of sheet+steel pipe is stable, and the gross margin of long materials has declined. In 2023, the company's overall gross sales margin was 9.40%, a year-on-year decrease of 0.92 percentage points. In terms of structure, in 2023, the company's gross profit margin for longwood products was 4.90%, down 0.99 percentage points from the previous year; the gross profit margin for sheet product sales was 15.31%, a slight decrease of 0.37 percentage points from the previous year; and the gross profit margin for steel pipe products was 13.32%, a slight decrease of 0.31 percentage points from the previous year. We believe that in 2023, when the industry is sluggish, the gross margin level of the company's dominant board products was relatively stable, and the overall decline in gross margin was mainly affected by the accelerated decline in profit levels of some construction steel products.
Continuous optimization of management has achieved significant cost reduction results. At the end of 2023, the company's balance ratio was 51.67%, down 0.21 percentage points from the end of 2022. During this period, the company's financial expenses were 72 million yuan, down 2,689 million yuan from the historical high; in addition, the company's management and sales expenses ratios were 1.04% and 0.27%, respectively, which was the same as in the same period in 2022. At the production level, the company continues to reduce process costs, improve procurement cost competitiveness, and reduce energy costs. The company's internal continuous optimization of production processes and management capabilities enhances the company's ability to cross the cycle.
Investment advice: The company's profitability is strong and resilient, and I am still optimistic about the company's allocation value at the bottom of the industry. Looking at the short term, the industry's current boom is under strong downward pressure. Due to prudential considerations, the company's profit forecast for 2024-2026 was lowered. The company is expected to achieve operating income of 163.321 billion yuan, 166.826 billion yuan, and 169.511 billion yuan in 2024-2026, a year-on-year change of -0.7%, +2.1%, and +1.6%; net profit to mother of 5.406 billion yuan, 5.960 billion yuan, and 6.391 billion yuan, year-on-year changes of +6.5%, +10.2%; the price-earnings ratio corresponding to the current stock price is 7/6/6 times, respectively. We believe that in the future, as the company continues to promote optimization and adjustment of the variety structure, the company's performance is still expected to improve. We are optimistic about the company's allocation value at the bottom of the industry, and there is room for repair in the company's valuation. We gave the company a target price-earnings ratio of 9 times in 2024, lowered the target price to 7.02 yuan, and maintained a “strong push” rating.
Risk warning. Prices of raw materials fluctuated greatly; macroeconomic fluctuations, and the pace of upgrading the company's product structure fell short of expectations.