Incident: Honglu Steel released its 2024 quarterly report. In 24Q1, the company achieved total operating revenue/net profit/net profit deducted from non-net profit of 44/2.0/ 0.9 billion yuan, -12%/+1%/-39% year-on-year.
Comment:
Excluding disturbances in R&D expenses, net profit deducted by tons increased significantly year-on-year.
In 24Q1, the company's steel structure output was 920,000 tons, +0.1% year over year; based on the company's Q1 production and sales rate level in previous years (with the exception of 23Q1, some 22Q4 demand was delayed until 23Q1 to complete delivery due to epidemic factors, so the 23Q1 production and sales rate was high), judging that the 24Q1 production and sales rate was about 80%, estimated sales volume of 730,000 tons, -16% year over year.
The gross profit of 24Q1 ton is estimated at 639 yuan/ton, +108 yuan/ton year over year, and +23 yuan/ton compared to the previous month. It is determined that factors such as fluctuations in steel prices and changes in product structure have clearly weakened the disturbances in ton profits. It is estimated that in 24Q1, the company's non-net profit was about 119 yuan/ton, or 44 yuan/ton, mainly due to high R&D expenses in 24Q1; in 24Q1, the company's tonne R&D expenses were 213 yuan/ton, +126 yuan/ton, or because the intelligent transformation of the company's welding process has entered the sprint stage, and R&D investment intensity is high. Assuming that R&D expenses of 24Q1 tons remained flat year on year, it was estimated that 24Q1 ton net profit was +63 yuan/ton year on year; after excluding factors that disrupted R&D expenses, the company's ton deducted non-net profit increased significantly year over year.
The company made large-scale tenders for welding robot parts, and intelligent transformation is progressing at an accelerated pace.
In April '24, the company issued a number of tenders to bid for 2,000 sets of components such as ground rails and welding guns required for welding robots. 24Q1 Company's R&D expenditure rate is 3.5%, which is significantly higher than the 2018-2023 R&D expenditure rate (2.3%-3.1%). The phased increase in the company's R&D expenses rate may indicate that the company's intelligent transformation has entered a critical period, and may lay a solid foundation for improving production efficiency and reducing costs in the next year.
Profit forecast, valuation and rating: 24Q1 Honglu Steel Structure's gross profit rebounded month-on-month, and the impact of fluctuations in steel prices on profitability may have weakened. The company's high R&D investment led to a phased phased decline in tonnage deduction. After eliminating this factor, the company's 24Q1 tonnage nonprofit level improved significantly year-on-year. We are optimistic that the company will achieve an increase in capacity utilization through intelligent transformation, which will bring about a continuous increase in revenue and profit, and we are also optimistic that the company will further strengthen its cost advantage through intelligent transformation. We maintain the company's 2024-2026 net profit forecast of 1.52 billion yuan, 1.82 billion yuan, and 2.19 billion yuan. The current price corresponds to the 2024 dynamic price-earnings ratio of 8x, maintaining the “buy” rating.
Risk warning: Steel prices fluctuate greatly, capacity expansion and utilization rates fall short of expectations, and demand recovery falls short of expectations.