Event: The company released the 2023 Annual Report and the 2024 First Quarter Report. The company achieved operating income of 344.5 billion yuan in 2023, a year-on-year decrease of 6.3%; net profit attributable to shareholders of listed companies was 11.944 billion yuan, a year-on-year decrease of 2.0%; and basic earnings per share were 0.54 yuan. The first quarter of 2024 achieved operating income of 80.814 billion yuan, an increase of 2.81% year on year; net profit attributable to shareholders of listed companies was 1.926 billion yuan, an increase of 4.4% year on year; basic earnings per share were 0.09 yuan.

2024Q1 performance rebounded year on year, and gross margin is expected to rise in the future. The company achieved net profit to mother of 3,594 billion yuan in 2023Q4, up 31.97% year on year and 5.37% month on month; 2024Q1 achieved net profit of 1.926 billion yuan, up 4.41% year on year and down 46.41% month on month; steel prices generally fell in the first quarter of 2024, and the profit ratio of steel companies was low, and the company's performance was in line with industry profit trends; the company's gross sales margins were 4.94%, 8.29%, 6.32% and 5.13%, respectively. , 5.21%, 4.55%, and 2.83%, 2024Q1's gross sales margin and net profit margin declined. Affected by the general weakening of raw material prices in March and April, the gross margin of steel sales is expected to rise in the future.

The company's output continues to grow, and exports and sales of high-end products have increased. According to the company's announcement, the company's output in 2023 was 51.94 million tons, up 4.2% year on year, sales volume was 51.9 million tons, up 4.3% year on year; export orders reached a record high in 2023, achieving total profit of 15.09 billion yuan, and sales volume of “1+1+N” products were 27.92 million tons, up 10% year on year; in the first quarter, the company achieved export orders of 1.52 million tons, exceeding the target schedule. In addition, the company's efforts to reduce costs have been further strengthened. In 2023, it achieved a cost reduction of 5.01 billion yuan, exceeded the annual target, and achieved a cost reduction of 2.24 billion yuan in the first quarter, which strongly supports the company's operating performance to outperform the industry market. As subsequent companies deepen the optimal division of labor and resource allocation in production lines and continue to optimize the product structure, the profitability of the main business is expected to increase.

The gross margins of various product lines have generally improved, and dividend rates have increased month-on-month. According to the company's announcement, the gross margin of the company's cold-rolled carbon steel sheet coil increased by 2.5 pct to 7.6%, the gross margin of steel pipe products increased by 2.7 pct to 4.2%, and the gross margin of hot-rolled carbon steel coil products decreased by 0.8 pct to 1.5%, and the total gross margin increased by 0.5 pct to 4.3%; in the second half of 2023, the company's proposed discovery dividend dividend of 0.20 yuan/share (tax included) accounted for 58.72% of the net profit attributable to shareholders of the parent company in the second half of the consolidated statement, an increase of 5.11 pcts over the first half of 2023. The highest cash dividend ratio since 2021. As the company's ultra-low emissions transformation is completed, subsequent capital expenditure is expected to decline, and the dividend ratio may remain high.

Investment advice. The company is the leader in the industry, focusing on high-end special board manufacturing, benefiting from mergers and restructuring attributes, high-end product structure, and significant cost reduction space. We expect the company's net profit to continue to improve from 2024 to 2026 to 13.32 billion yuan, 13.99 billion yuan, and 15.01 billion yuan. Referring to the company's valuation changes over the past three years, we believe that the company's valuation has obvious room for repair. The central valuation region corresponds to a market value of about 234.2 billion yuan in the past three years, maintaining a “buy” rating.

Risk warning: Prices of upstream raw materials have risen sharply, steel demand and output scale estimates may be biased, and there is uncertainty about new business development.