Event: The company released its 2023 annual report and 24Q1 quarterly report. The company achieved operating income of 5.556 billion yuan in 2023, an increase of 6.58% over the previous year; realized net profit of 554.7 million yuan after deducting non-return to mother, turning a loss into profit compared to 22 and +18.3% compared to 21; and basic earnings per share rose to 0.33 yuan. In addition, the company's 24Q1 revenue -2.12% to 1,239 million yuan, after deducting net profit not attributable to mother, reversed losses and achieved profit of 0.034 billion yuan. During the reporting period, the production and sales scale of the company's tire ring steel wire and steel cord continued to expand, cost reduction and efficiency policies were effectively implemented, and overseas market share continued to rise, compounding the continuous increase in market demand in the framework materials industry, which jointly promoted a significant optimization of the company's performance status.

The bezel steel wire business is the company's competitive pillar business segment. The company's tire wire business achieved revenue of 2.31 billion yuan in 2023, accounting for 41.58% of the main business; gross margin increased 5.5 pct to 9.73%.

From the perspective of production, the company's bezel steel wire production increased by 21.55% to 428,000 tons in '23, and the market share reached 38.3%. The company's tire ring steel wire production capacity utilization rate and production and sales rate continued to be extremely high. Although 2 new bezel steel wire production lines were added to the Zhucheng factory in 23, the production capacity utilization rate and production and sales rate of the business still reached 107% and 101.5% respectively, indicating the strong market competitiveness and strong liquidity creation ability of the company's tire ring steel wire products. Considering the high market share, strong growth, and outstanding technical R&D and manufacturing process level of the company's bezel steel wire business, and the continuous increase in production capacity of the new product cable bezel steel wire (+30% to 880,000 pieces in 23 years), we expect the gross profit level of this business to continue to be optimized and increased to 12% by 2025.

The steel cord business has become the company's second growth curve. The company's steel cord business continued to expand in 2023, achieving annual revenue of 2,835 billion yuan, accounting for 51.02% of the main business. From the perspective of production and capacity utilization, the company's steel cord production in 2023 was +22.08% to 35.95 tons, and the capacity utilization rate rose to 77.3%, indicating that the actual production capacity began to resume effective operation after the restructuring of Shengtong Steel Cords. Furthermore, from the perspective of production and sales rate, the company's steel cord sales volume in '23 was +21.46% to 358,800 tons, and the production and sales rate reached 99.8%, indicating the strong growth of the company's steel cord products. Since the third phase of the intelligent transformation of steel cords in the Zhucheng factory area has been completed and put into operation; the first phase of the steel cord plant in the Kenli factory area has been successfully put into use and construction of the second phase has also begun (expected to be completed and used in October 24), we believe that the steel cord business will continue to grow and optimize the business profit and gross profit level (the gross profit contribution is estimated to be about 409 million yuan, gross margin may increase to more than 10%), and the steel cord business has grown into the company's second growth curve.

The company's growth advantages are still obvious. The company's growth stems from the expansion of the scale of production and sales, the increase in overseas market revenue share, and the entry of profit margins into the optimization cycle. From a production capacity perspective, the company's production and sales scale in 2023 reached around 830,000 tons (production +19.6% to 836,000 tons, sales +18.5% to 830,000 tons), and the company's production and sales scale is expected to reach 900,000 tons and 1 million tons in 2024-2025 (+20.5% compared to 23 years). Looking at overseas market expansion performance, the company's overseas business revenue increased sharply from 447.5 million yuan in 2020 to 1,349 million yuan in 2023, an increase of +201.4%; the gross margin of overseas business rose to a new high of 19.57% (only 4.65% gross margin of domestic business), and the share of overseas gross profit increased sharply from 24.8% to 57.9% (while the share of overseas revenue increased from 14.6% to only 24.3% during the same period). Since the company has established subsidiaries in the US and Europe in 2023, empowering smart factories and green and low-carbon ESG products will further enhance the company's competitive advantage in overseas markets. It is expected that the company's overseas business revenue share may rise to more than 40% in the next three years, which will drive the company's profit scale to release flexibility. Furthermore, from the perspective of the company's profit, the actual production cost of the company's products has also entered the optimization cycle. The company's online implementation of distributed wind power projects in the later stages (estimated power generation capacity of more than 500 million kWh), biomass boilers (saving 780,000 cubic meters of natural gas per year), and the continuous development of photovoltaic projects (cumulative annual power generation of 84,800 MWH) will drive the company's cost side to show structural optimization and help increase the company's overall gross profit level to 2026 or 11.79%.

Profit forecast and investment rating: Considering the characteristics of the company's products, capacity growth and the expansionability of the industry in which it is located, combined with forecasts of production capacity, capacity utilization, production and sales rate and gross margin of the company's various business lines, we forecast that the company's revenue for 2024-2026 will be 68.52/79.07/8.372 billion yuan, up 23.3%/15.4%/5.9% year-on-year, and the comprehensive gross margin will be 7.61%/11.16%/11.79%, respectively. Achieved net profit of 1.74/3.5/455 million yuan, a year-on-year increase of +63.74/ +101.06%/+29.8%. The current stock price corresponding to 2024-2026 PE values is 17.7X/8.81X/6.78X, respectively, maintaining the “recommended” rating.

Risk warning: Raw material prices fluctuate greatly, market demand falls short of expectations, production capacity release falls short of expectations, risk of declining gross margin, risk of technological innovation, risk of market competition, and policy risk.