Key points of investment:

Maintain an “Overweight” rating. The company achieved revenue of 9.305 billion yuan in the first quarter of 2024, up 24.29% year on year, and realized net profit of 122 million yuan, up 30.46% year on year. The company's performance was in line with expectations. Considering that the company's production continues to rise, the company's net profit forecast for 2024-25 was raised to $528/627 million yuan (originally $511/584 million yuan), and the net profit forecast for 2026 was increased to 715 million yuan, corresponding EPS to 1.44/1.71/1.95 yuan. Maintain the company's target price of 25.53 yuan and maintain the “gain” rating.

Production continues to be released. In 2023 and the first quarter of 2024, the company's sales volume of stainless steel cold-rolled sheets was 285 and 700,000 tons respectively, up 15.08% and 47.05% year-on-year respectively. According to the company's 2023 annual report, the company's Zhejiang Yongjin projects of 195,000 tons and Guangdong Yongjin 350,000 tons were put into operation in December and July 2023, respectively. The two projects will continue to bring growth to the company in 2024. The company plans to sell 3.2 million tons of cold-rolled stainless steel in 2024, and the company's production will continue to be released.

Single-ton profits may have bottomed out. In each quarter of 2023 and 24Q1, the company's gross profit per ton was 749, 674, 609, 679 and 638 yuan/ton, respectively. The net profit for a single ton product was 197, 173, 131, 158, and 175 yuan/ton, respectively. The downward trend in the company's gross profit per ton product may have stopped, and the bottom area of the stainless steel cold rolling industry has gradually been discovered. At the industry level, although the stainless steel cold rolling industry will add more production capacity than demand in 2023, the contradiction between supply and demand is gradually easing as demand for stainless steel grows steadily.

The titanium project continues to advance. Construction of the company's titanium and pre-nickel-plated steel strip projects began in May 2023, and is expected to reach the trial production stage in June 2024. Titanium and pre-nickel-plated steel strips complement the company's variety structure. Currently, titanium is being used in the field of consumer electronics, and the future prospects are broad.

Risk warning: The commissioning of new production capacity falls short of expectations; stainless steel prices fluctuate greatly.