Reduce costs and increase efficiency, and performance is resilient. In recent years, the company's sales volume of various steels has continued to increase, compounded by cost pressure reduction and balance and liability structure optimization, and the company's ability to withstand market fluctuations has continued to improve. In 2023, against the backdrop of weak industry demand and relatively strong raw fuel prices, the company's performance stability was repeatedly verified. Total operating income for the whole year was 164.465 billion yuan, down 2.47% year on year, and net profit to mother was 5,079 billion yuan, down 20.38% year on year. In the fourth quarter, the company achieved total revenue of 44.194 billion yuan, an increase of 8.54% over the previous quarter, and net profit to mother of 974 million yuan, a decrease of 36.65% over the previous quarter.
Increase investment in R&D and increase sales of various steels. The company has long paid attention to R&D investment and continues to promote high-end product transformation. In 2023, the company incurred R&D expenses of 6.83 billion yuan, increasing its share of revenue to 4.2%. From an equipment perspective, the promotion of the company's projects such as silicon steel and automobile panels can further enhance the company's production capacity for high-end products. In 2023, the company's grade steel sales increased 6.0% year on year to 16.83 million tons, and the share of grade steel sales increased from 32% in 2016 to 63%. Varieties of steel are steel products with both technical thresholds and excessive profits. They are mainly supplied directly to customers and have relatively stable profitability. Take the holding subsidiary Auto Board Company as an example. Thanks to technical cooperation with ArcelorMittal, an outstanding global steel company, to give full play to its differentiated competitive advantage of patented products, it achieved net profit of 2,474 billion yuan in 2023, an increase of 49.78% over the previous year, and performance bucked the trend.
The reward and punishment system has been deepened, and the cost during the period is lower. The company continues to deepen the “hard restraint and strong incentive” mechanism, and 18 middle management personnel were adjusted due to poor performance. Under a number of measures, the company's per capita steel production has maintained a high level, and there have been obvious results in reducing process costs and energy costs. With the optimization of the asset structure, the company's balance ratio fell to 51.7% by the end of 2023. Expenses remained low during the period. The company's sales expenses, management expenses, and financial expenses accounted for 0.27%, 1.04%, and 0.04% of total revenue, respectively.
The dividend ratio was increased, and shareholders were positively rewarded. The company plans to distribute cash dividends of 2.3 yuan (tax included) to all shareholders for every 10 shares, totaling 1,589 billion yuan in cash, accounting for 31.3% of net profit attributable to mother. The company's dividend payment rates for 2021 and 2022 were 20.7% and 26.0%, respectively. Based on the closing price on March 29, the corresponding dividend rate was 4.3%.
Risk warning: The demand side declined more than expected; production control fell short of expectations; raw material price fluctuations exceeded expectations.
Investment advice: The steel industry is still under high operating pressure, but the company's share of steel varieties has increased, and the results in cost reduction and efficiency have been remarkable, and its performance has steadily ranked first in the industry. We expect the company's 2024-2026 revenue to be 1663/1684/171.3 billion yuan, with a year-on-year growth rate of 1.1%/1.2%/1.8%; net profit to mother of 54.0/57.6/6.17 billion yuan, a year-on-year growth rate of 6.3%/6.6%/7.1%; diluted EPS of 0.78/0.83/0.89 yuan, corresponding PE to the current stock price is 6.7/6.3/5.9x, maintaining the “increase” rating.