Description of the event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 344.868 billion yuan, a year-on-year decrease of 6.6%; net profit to mother was 11.944 billion yuan, a year-on-year decrease of 2%; net profit after deduction of 10.453 billion yuan, a year-on-year decrease of 1.4%. With 2024Q1, the company achieved revenue of 80.814 billion yuan, a year-on-year increase of 2.4% and a decrease of 9.7%; net profit to mother of 1,926 billion yuan, an increase of 4.4% year-on-year and a decrease of 46.4% month-on-month; net profit without return to mother of 1,576 billion yuan, a decrease of 4.1% year-on-year and a decrease of 49.5% month-on-month.
Comment: Sales continue to increase, and gross margin remains volatile
① Volume: Sales volume continues to increase. In 2023, the company sold 51.9 million tons of steel, up 4.3% year on year.
Among them, steel pipe sales fell 5.6% year on year, and all other products increased. 2024Q1, the company completed sales volume of 12.52 million tons, up 3.4% year on year, of which 11.32 million tons of plate and strip were sold, up 4.2% year on year.
② Price: Gross margin remains volatile. In 2023, the average price of the company's products was 4,841 yuan/ton, down 9.1% year on year; 2024Q1, the average price of the company was 4,808 yuan/ton, down 4.2% year on year. In 2023, the company's gross margin was 6.20%, up 0.36 pct year on year, 2024Q1. The company's gross margin was 5.13%, down 0.14 pct year on year and 1.19 pct month on month.
Future core focus: Product structure continues to be optimized, leading position is stable ① Product structure continues to be optimized. In 2023, sales of “1+1+N” products were achieved, up 10% year on year, and “1+1+N” high-profit products increased by more than 2.5 million tons; all production lines specializing in high-grade non-oriented silicon steel for the NEV industry were put into operation, and cold-rolled automotive panels and oriented silicon steel maintained a high market share.
② Key projects continue to advance. Optimization of 200,000 tons/year non-oriented silicon steel product structure at Baoshan base (three steps):
Construction preparations are underway; the 220,000 tons/year ultra-high-grade silicon steel green manufacturing demonstration project at Baoshan base:
Construction preparations are underway; 220,000 tons/year high-end oriented silicon steel green manufacturing structure optimization project at Qingshan base:
Equipment bidding is underway; Dongshan base zero-carbon high-grade thin steel plate factory project: currently undergoing EIA, energy assessment and design bidding; Baoshan base oriented silicon steel product structure optimization (two-step) project: scheduled to be put into operation in the third quarter of 2024; Dongshan base hydrogen-based shaft furnace system project: currently in the handover and acceptance stage; 550,000 tons/year of new energy unoriented silicon steel structure optimization project at Qingshan base. Currently, plant and equipment infrastructure construction is being carried out.
③ Take a stake in Shandong Iron and Steel's Rizhao base to enhance enterprise competitiveness. On December 31, 2023, the company acquired 48.61% of the shares of Shandong Iron and Steel Group Rizhao Co., Ltd. for 10.703 billion yuan, which will help the company to better tap the potential for collaboration in the northern region and enhance its influence in the northern market.
Investment advice: As a leading enterprise in the steel industry, the company continues to grow in production and sales. At the same time, along with the gradual recovery of the domestic economy, we expect the company to achieve net profit of 131.09/153.48/17.443 billion yuan respectively in 2024-26, corresponding to the closing price on April 26. PE is 12, 10, and 9 times, respectively, maintaining the “recommended” rating.
Risk warning: project progress falls short of expectations; risk of rising raw material prices; downstream demand falls short of expectations, etc.