Event Overview: The company released its 2023 annual report. In 2023, the company achieved revenue of 39.874 billion yuan, a year-on-year increase of 0.8%; net profit to mother was 453 million yuan, a year-on-year decrease of 6.9%; and net profit without return to mother was 427 million yuan, a decrease of 6.5% year-on-year. With 2023Q4, the company achieved revenue of 12.293 billion yuan, up 33.8% year on year and 20% month on month; net profit to mother was 138 million yuan, up 0.9% year on year and up 35% month on month; net profit after deducting non-return to mother was 138 million yuan, up 12% year on year and 50.8% month on month.

Comment: Sales increased year on year, gross margin increased year on year

1. Volume: Sales increased year-on-year. In '23, Guangdong Yongjin and Zhejiang Yongjin added production capacity and were basically fully produced in a relatively short period of time. The company sold a total of 2,819,800 tons of cold-rolled stainless steel products throughout the year, an increase of 14.42% over the previous year. Among them, the company's precision cold-rolled 300 series/400 series sales volume was 11.50/492,000 tons, respectively, +16.64%/-24.69%; wide-width cold-rolled 300 series BA/300 series 2B/400 series BA sales volume was 3.93/220.12/317,700 tons, +91.56%/10.19%/47.87% year on year respectively; sales volume of other products was 125,900 tons, up 61.77% year on year.

2. Price: Gross margin increased year-on-year. The overall domestic stainless steel market price in 2023 showed a volatile downward trend.

The cumulative unit price of 304 cold rolling in the Wuxi region of the major steel mill fell by about 3,200 yuan/ton during the year, a decrease of about 18%. Among them, the downward trend in the first quarter and fourth quarter was obvious, mainly dragged down by weak demand and falling upstream material prices. The company's gross profit margin for 23 years was 4.79%, +0.22pct year over year. In 23Q4, the company's gross profit margin was 4.97%, +0.35pct month-on-month, and +0.35pct year-on-year.

Future core highlights: orderly construction of new production capacity, horizontal expansion of new materials business1. Orderly construction of multiple projects, volume can be expected. The company's various stainless steel cold rolling projects around the world are being built and put into operation in an orderly manner. The planned production and sales volume of cold-rolled stainless steel in 2024 is 3.2 million tons, an increase of about 13.5% over the previous year, and the scale effect of the company is expected to gradually become apparent. In anticipation of a pro-cyclical recovery, the company's future growth can be expected.

2. A fixed increase of 1.2 billion yuan was raised to guarantee construction capital for production expansion projects. The company completed a fixed increase in April 2023, issuing 444,115,47 shares at an issue price of 27.02 yuan/share, raising 1.2 billion yuan in capital for 220,000 tons of cold-rolled stainless steel in Yongjin, Gansu and 350,000 tons of cold-rolled stainless steel projects in Yongjin Phase III in Guangdong Province.

3. Implement diversified development strategies and lay out the special case material business for titanium alloys and cylindrical batteries. The company plans a “new titanium alloy material project with an annual output of 60,000 tons” and a “special shell material project for cylindrical batteries with an annual output of 225,000 tons” in 2022. The new material project is a reflection of the company's integrated industrial chain to implement an integrated, diversified development strategy. The first phase of the two new materials projects is expected to reach trial production in June 2024.

Investment suggestion: With the gradual commissioning of the company's precision cold-rolled stainless steel strip projects and the horizontal expansion of the new materials business, we expect the company's net profit to be 586/7.25/845 million yuan respectively in 2024-2026, corresponding to current prices. In 2024-2026, PE will be 7 times 11/9/7 times in sequence, maintaining the “recommended” rating.

Risk warning: The project process falls short of expectations; demand for stainless steel falls short of expectations; raw material prices fluctuate greatly.