Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 39.874 billion yuan, a year-on-year increase of 0.81%, and net profit to mother of 453 million yuan, a year-on-year decrease of 6.94%; basic earnings per share were 1.23 yuan. It is proposed to distribute a cash dividend of 5 yuan (tax included) for every 10 shares to all shareholders.

Results improved in the fourth quarter of 2023, and gross sales margin rebounded. The company achieved net profit of 138 million yuan in 2023Q4, up 0.73% year on year and 35.3% month on month; realized net profit without return to mother of 138 million yuan, up 12.02% year on year and 51.6% month on month; the company's 2023Q1-2023Q4 gross sales margins were 4.76%, 4.74%, 4.62%, and 4.97%, respectively, and quarterly net sales margins were 1.59%, 1.69%, 1.43%, 1.51%, respectively. The gross profit margin for 2023Q4 rebounded, and the net margin improved slightly. The four 2023Q4 expenses increased 0.1 pct compared to 2023Q3.

Sales increased year-on-year in the fourth quarter of 2023, and there is plenty of room for growth in sales and performance in 2024. The company's production and sales volume increased year-on-year in the fourth quarter of 2023. According to the announcement, the consolidated output of 2023Q4's cold-rolled stainless steel products was 759,000 tons, an increase of 26.7% year-on-year and a decrease of 6.1% month-on-month; the consolidated sales volume of cold-rolled stainless steel products was 774,000 tons, up 28.1% year-on-year and 0.8% month-on-month. According to the company's annual report, the planned production and sales volume of cold-rolled stainless steel in 2024 is 3.2 million tons, up 13.5% year on year. Consolidated operating income is expected to be 43.5 billion yuan to 48 billion yuan, up 9.1% to 20.4% year on year, and net profit attributable to listed companies is expected to be 620 million yuan to 785 million yuan, up about 36.8% to 73.3% year on year.

Multiple projects are progressing steadily, and there is plenty of room for main business expansion. According to the announcement, the projects approved/under construction by the company include the Jingjiang Yongjin annual processing 1.2 million tons of high-quality wide stainless steel strip project (phase I); Vietnam's Xinyue processing 260,000 tons of precision stainless steel strip (phase I) and (phase II); Thailand's Yongjin precision stainless steel strip project with an annual production capacity of 260,000 tons; Zhejiang Prisai's special case material project with an annual output of 225,000 tons (phase I); the production capacity of Zhongyuan Titanium Industry's new titanium alloy material project with an annual output of 60,000 tons (phase 1) is equivalent to 1.01 million tons. Of production in 2023 35.6%, there is huge room for future expansion of the main business.

Accelerate the transformation of deep processing, and steadily advance multiple production lines. According to the announcement, the company's projects under construction include the “new titanium alloy material project with an annual output of 60,000 tons” and the “special shell material project for cylindrical batteries with an annual output of 220,000 tons”. The first phase of the two projects is expected to reach trial production in June 2024, and the new titanium alloy material project will begin in due course; in addition to the traditional main business of stainless steel processing, the company's business is gradually expanding into deep metal processing, gradually expanding from focusing on the steel industry to non-ferrous metals and other fields, further enhancing the company's ability to cope with cycle fluctuations in a single industry.

Investment advice. The company focuses on stainless steel cold rolling processing, and has an advantage in mainstream product competition. It relies on many leading stainless steel hot rolling enterprise channels to rapidly expand production capacity. In the long run, its high growth rate and metal material processing cost advantages are outstanding. The company is expected to achieve net profit of 650 million yuan, 730 million yuan, and 81 million yuan respectively from 2024 to 2026, and EPS of 1.77 yuan, 1.98 yuan, and 2.21 yuan respectively. Corresponding PE is 9.1 times, 8.1 times, and 7.3 times, maintaining a “buy” rating.

Risk warning: Prices of upstream raw materials fluctuate greatly, processing costs fell beyond expectations due to rapid increases in production capacity, demand for stainless steel sheets fell short of expectations, and there is uncertainty about new business development.