Core views:
Honglu Steel released its 2024 quarterly report. According to the first quarterly report, 2024Q1 achieved revenue of 4.427 billion yuan, down 11.77% year on year; net profit to mother of 203 million yuan, up 1.12% year on year; deducted non-net profit of 87 million yuan, down 38.79% year on year. Of the non-current profit and loss, the company's 24Q1 government subsidy was 151 million yuan (23Q1 government subsidy was 74 million yuan). The company's decline in non-performance in the first quarter was mainly due to a sharp increase in R&D expenses. 24Q1 R&D expenses were 157 million yuan, and 23Q1 R&D expenses were 76 million yuan.
Both gross margin and net margin increased, and net inflow of operating cash flow decreased. Net operating cash flow inflow of $84 million in 24Q1 and net inflow of $168 million in 23Q1. In terms of profit level, the company's 24Q1 gross margin/net margin/ROE (weighted) was 10.59%/4.59%/2.19%, respectively, with year-on-year changes of +1.34/+0.59/-0.21pct, respectively. The gross margin and net margin levels increased.
Net profit per ton is stable, and automation transformation is advancing at an accelerated pace. According to the company's operating data announcement, 24Q1 output was 917,900 tons, up 0.09% year on year; net profit per ton: 24Q1 ton net profit (net profit to mother) was 221.3 yuan/ton, an increase of 2.3 yuan/ton; net profit after deducting non-ton net profit (net profit/production) of 95.3 yuan/ton in 24Q1, a year-on-year decrease of 60.5 yuan/ton. Low downstream sentiment put pressure on net profit per ton. According to the Qianjiang Robotics release, the company formally signed a procurement contract for 800 Qianjiang welding robots on April 17. The application of intelligent industrial welding robots and laser cutting machines has further increased the company's degree of industrialization. Future intelligent production line transformation is expected to bring about an increase in net profit by tons. We look forward to future improvements in demand and improvements in operating efficiency after intelligent upgrades.
Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 13.34/15.34/1,742 billion yuan respectively, maintaining a reasonable value of 25.13 yuan/share, corresponding to 13 times the company's PE over 24 years, maintaining a “buy” rating.
Risk warning: steel prices fluctuate; new orders fall short of expectations; net profit per ton continues to decline.