Incident: The company disclosed its 2023 annual report. Revenue stabilized and profit declined slightly. The company's revenue for the full year of 2023 was 39.874 billion yuan, +0.81% year on year; net profit to mother was 453 million yuan, -6.94% year on year; net profit after deducting non-return to mother was 427 million yuan, -6.5% year on year. The company's revenue stabilized, and profits declined slightly.

Sales of the company's main products increased in 2023, supply in the company's main industry exceeded demand, and stainless steel prices fell.

The total sales volume of the company's products in 2023 was 2,846,600 tons, +15.08% year-on-year. Among them, the main products, wide-width cold-rolled stainless steel 300 series 2B, sold 2.0212 million tons, +10.19%; wide-width cold-rolled stainless steel 400 series BA sold 316,700 tons, +47.87% year over year; and precision cold rolled stainless steel 300 series sold 115,000 tons, +16.64% year over year. In 2023, the industry's production capacity growth rate was greater than the growth rate of demand, and overall market supply exceeded demand. The overall domestic stainless steel market price in 2023 showed a volatile downward trend. Judging from the mainstream prices in the 304 cold rolling market of major domestic steel mills in the Wuxi region at the end of 2023, the unit price dropped by a cumulative total of about 3,200 yuan/ton during 2023, a drop of about 18%.

The construction of the stainless steel project is progressing steadily, and it is expected that the company's stainless steel production and sales will continue to grow in the future. The company's annual processing of 195,000 tons of ultra-thin precision stainless steel strip project was put into operation in December 2023; the company's annual processing of 1.2 million tons of high-quality wide stainless steel strip project (phase I) is expected to reach the trial production stage in October 2024; the annual processing of 260,000 tons of precision stainless steel strip (phase I) is expected to reach the trial production stage in May 2024; the second phase is expected to reach the trial production stage in May 2025; Thailand has completed land acquisition work. The company's project construction is progressing steadily, and it is expected that the company's stainless steel production and sales will continue to grow in the future.

The company expects new businesses such as special materials for battery cases and titanium alloys to be put into operation in 2024, and the new drivers of the company's performance are worth looking forward to. The company's special shell material project for cylindrical batteries with an annual output of 225,000 tons (phase I) is expected to reach the trial production stage in June 2024; the company's new titanium alloy material project with an annual output of 60,000 tons (phase I) is expected to reach the trial production stage in June 2024.

Profit forecast: The company's 24-26 revenue is estimated to be 457.77/540.35/62,535 billion yuan, respectively, net profit to mother of 5.48/7.15/855 million yuan, and PE of 11.64/8.92/7.46, respectively. Maintain a “buy” rating.

Risk warning: (1) The company's production line construction falls short of expectations; (2) competition in the battery case industry intensifies; (3) there are problems with the sales side of the company's titanium alloy business