Introduction to this report:
The company's performance in 2023 fell slightly short of expectations. The main reason was that the decline in steel prices was greater than the decline in raw material prices, and the company's performance was under pressure in the short term. We are not pessimistic about the supply and demand pattern of the steel industry in 2024, and we expect the industry's profit center to gradually recover.
Key points of investment:
Maintain an “Overweight” rating. In 2023, the company's revenue was 98.938 billion yuan, down 3.15% year on year, and net profit to mother - 1,327 billion yuan, down 54.75% year on year. Performance was slightly lower than expected. Considering that demand is still weak, the company's operations continue to be under pressure. Net profit from 2024-2025 was reduced to 0.68/120 million yuan (previously 12.41/19.00), and the net profit from 2026 was added to 177 million yuan, corresponding to EPS of 0.01/0.02/0.02 yuan. Referring to comparison with similar companies, we gave the company a PB valuation of 0.86 times in 2024, lowered the target price to 3.09 yuan (originally 3.39 yuan), and maintained the “gain” rating.
Short-term performance is under pressure. In 2023, the company's steel production and sales volume was 20615, 20.595 million tons, up 3.66% and 3.61% year on year; gross profit per ton of steel was 79.14 yuan/ton, down 52.44% year on year. In 2023, overall steel demand was weak, steel prices fell, and the price of superimposed raw materials remained high, putting pressure on the company's performance in the short term.
The first phase of the new special steel project was successfully put into operation, which is conducive to optimizing the product structure. The 3.2 million ton new special steel project is an important project of the company. It is being built in two phases. The products are mainly high-value-added steel such as steel for construction machinery, steel for wind power rings, high-speed wire, high-quality carbon steel, alloy structural steel, gear steel, and bearing steel. The first phase of the project started in December 2021 and was put into operation in June 2023; according to the company's 2023 annual report announcement, the second phase of the project was suspended. Later, after the project is gradually completed and put into operation, it will help the company further optimize its product structure and enhance its profitability.
Industry demand is not pessimistic, and the company's performance is still resilient. Although real estate is still declining, it is still a major drag on the increase in steel demand, but after the decline in the past two years, the share of real estate demand has fallen below 20%, and the negative drag of real estate on steel will decline. Furthermore, infrastructure and manufacturing maintain a steady growth trend, which is expected to hedge against the decline in the real estate side. We don't think there is any need to be too pessimistic about 2024 steel demand.
Risk warning: The recovery in downstream demand falls short of expectations; raw material prices have risen sharply.