Key points of investment:
The company released its 2023 annual report, and the performance was in line with market expectations. During the reporting period, the company achieved total revenue of 164.465 billion yuan, a year-on-year decrease of 2.47%, and net profit to mother of 5.079 billion yuan, a year-on-year decrease of 20.38%. The company's net profit for the fourth quarter was 973 million yuan, down 21.96% year on year and 36.65% from the third quarter.
The variety structure continues to be optimized, and the profit per ton is resilient. In 2023, the company achieved steel sales of 26.53 million tons, which was basically the same; the price of a ton of steel was about 4,645 yuan/ton, down 8.39% year on year; the cost of a ton of steel was about 4104 yuan/ton, down 7.95% year on year; gross profit of ton steel was about 542 yuan/ton, down 12.07% year on year. During the reporting period, the company further optimized its product structure, and sales volume of various steels increased 5.98% year on year, accounting for a year-on-year increase of 60% in 2022 to 63% in 2023, effectively reducing profit fluctuations. In the current situation of widespread losses in the steel industry, the profitability of tons of steel showed strong resilience.
R&D expenses remained high, and management and sales expenses declined year-on-year. During the reporting period, the company's management expenses were 1,711 billion yuan, a year-on-year decrease of 3.05%; sales expenses were 446 million yuan, a year-on-year decrease of 3.24%; and financial expenses were 72 million yuan, an increase of 90 million yuan, mainly due to the increase in the company's interest-bearing liabilities and a year-on-year decrease in exchange earnings. In addition, the company's R&D expenses in the current phase were about 6.828 billion yuan, an increase of 6% over the previous year, maintaining a high level.
Production line upgrades are speeding up the high-end transformation process, and the proportion of high-end products is expected to increase further. According to the company's announcement, during the reporting period, Valin Liangang's first phase of cold-rolled silicon steel and other projects were completed, forming 200,000 tons of finished unoriented silicon steel products and 90,000 tons of semi-finished silicon steel production capacity, which is expected to push Valin Liangang Steel to achieve a new leap from single silicon steel substrate supply to full-process high-end silicon steel manufacturing; at the same time, the second phase of the VAMA automobile board project was successfully completed and put into operation, adding 450,000 tons of high-end automotive steel production capacity per year, which will further meet the rapid development needs of the NEV sector. The continuous advancement of silicon steel and high-end automotive board projects is expected to further increase the proportion of the company's high-end products.
Investment analysis opinion: Affected by the macroeconomic downturn, steel prices have declined somewhat year on year since the beginning of 2024. We lowered our 2024-2025 net profit forecast to 5.479 billion yuan and 5.926 billion yuan (the original forecast was 6.03 billion yuan and 6.491 billion yuan), and added the 2026 net profit forecast of 6.464 billion yuan, corresponding to 24-26 PE 7 times, 6 times, and 6 times, respectively. Comparable companies refer to Baosteel Co., Ltd. and Nangang Steel Co., Ltd., which have the same product structure, and the average PE for 24-25 years was 11 times and 10 times, respectively. Therefore, the company's valuation level is low, and considering that the downstream of the company's products is mainly in the manufacturing industry, it is less affected by the prosperity of the real estate industry. At the same time, as the company continues to optimize its product structure, it is expected that the share of high-profitability varieties of steel will continue to rise, and profit levels are expected to rise steadily, so it maintains a “buy” rating.
Risk warning: Prices of raw materials rose more than expected; demand for steel used in manufacturing fell short of expectations.