Excluding the impact of economic and development expenses, net profit in Q1 operating tonnes rebounded year-on-year. The company achieved revenue of 4.43 billion yuan in 2024Q1, a decrease of 12%, mainly due to: 1) the decline in steel prices led to a decrease in the price of steel structure products (the average daily price of 2024Q1 hot-rolled coil was 4,073 yuan/ton, down 6%); 2) the base for the same period last year was high (after the impact of specific macroeconomic events, the 2023Q1 industry entered a catch-up period, owners' pick-up accelerated, and revenue increased by 43%). 2024Q1 achieved net profit of 200 million yuan, an increase of 1%. The growth rate was higher than revenue, mainly due to receiving more government subsidies (about 150 million, YoY+ 80 million); net profit after deduction was 87 million yuan, a decrease of 39%. The net profit of 2024Q1 per ton is 95 yuan, YoY-61 yuan based on output. It is expected that R&D investment, such as production line intelligence, etc. will increase. If R&D expenses are added back to the net profit after deducting non-net profit, the net profit per ton is 266 yuan, YoY+27 yuan, indicating a year-on-year recovery in actual operating tonnage net profit. In March, China's manufacturing PMI index increased by 1.7pp to 50.8 month-on-month (back to the boom and bust line). The domestic manufacturing industry sentiment showed a recovery trend. Honglu steel orders had more steel structures for industrial plants. Previously, the market was worried about the manufacturing industry sentiment under weak macroeconomic expectations. The company's valuation continued to be under pressure. As the current manufacturing industry rebounded, the company's undervaluation is expected to meet the momentum for repair.
Gross profit margins have rebounded, R&D expenditure rates have increased year-on-year, and cash inflows have narrowed. 2024Q1 has a gross profit margin of 10.6%, YoY+1.3 pct. The gross margin has clearly rebounded. It is expected that the cost of high-priced inventory steel in the early period will have less disturbance. The cost rate for the period was 7.18%, YoY+2.54 pct. Among them, the sales/management/R&D/finance expense ratios were YoY+0.04/+0.12/+2.02/+0.36pct, respectively. Due to a decline in revenue and a certain degree of rigidity, all cost rates increased. Among them, the R&D cost ratio increased significantly, mainly due to the increase in R&D investment of intelligent robots in the company's production line. Net profit margin 4.6%, YoY +0.6 pct. Q1 The company's net operating cash flow inflow was 80 million yuan, a year-on-year narrowing of 80 million yuan, mainly due to a year-on-year decline in revenue. Payout ratio/ payout ratio was 107%/96%, YOY+7/+10pct, respectively.
Capacity utilization is expected to increase further, driving ROE upward. At present, the company's steel structure production capacity has reached 5 million tons, with an output of 4.49 million tons in 2023, a capacity utilization rate of 90%, and YOY+7pct. The company's expansion rate is slowing down in the short term. It is expected to increase capacity utilization and reduce the depreciation and amortization share in production costs. This is the focus of current business work, thereby increasing net profit and turnover per ton, thereby driving ROE upward.
To this end, the company focuses on promoting intelligent transformation of production lines, improving supporting factories, strategic cooperation with raw material suppliers, and upgrading management informatization, etc., to continuously promote the release of production capacity, acceleration of turnover, and reduction of production costs and efficiency. Among them, in terms of intelligent welding robots, the company currently has the ability to integrate ground-rail intelligent welding workstations. Currently, the company's top ten production bases have put in use a small number of Honglu lightweight intelligent welding robots and ground-rail-free intelligent welding workstations integrated with their own. If they are deployed on a large scale in the future, it is expected to help the company improve production capacity utilization, improve quality, and reduce costs. Furthermore, according to the video number of the company's technology center, the company's welding robots are currently sold abroad. Among them, the lightweight intelligent welding robot sells for 128-133,000 yuan/unit, and the teaching-free intelligent welding workstation is 198,000 yuan/unit, which is expected to contribute to the company's profit growth in the future.
Investment advice: We forecast that the company's net profit due to mother in 2024-2026 will be RMB 1,300/14.8/1.68 billion, respectively, up 10%/14%/13% (CAGR in 2023-2026 is 13%). The current stock price corresponds to PE of 9.8/8.6/7.6 times, maintaining a “buy” rating.
Risk warning: Risk of capacity construction and capacity utilization falling short of expectations, risk of steel price fluctuations, risk of intelligent production line efficiency falling short of expectations, competition increasing risks, etc.