Event Overview: The company released its 2023 annual report and 2024 quarterly report: in 2023, the company achieved revenue of 3,516 billion yuan, an increase of 24.2%; net profit to mother of 352 million yuan, an increase of 63.4% year on year; net profit after deducting non-return to mother of 324 million yuan, an increase of 83.6% year on year. With 2024Q1, the company achieved revenue of 730 million yuan, a year-on-year decrease of 15.9% and an 8.2% month-on-month decrease; net profit to mother of 68 million yuan, a decrease of 6.3% year-on-year and a decrease of 13.5% month-on-month; net profit without deduction of 65 million yuan, a decrease of 3.3% year-on-year and 0.4% month-on-month.
Comment: The level of gross profit has improved, and dividends have increased again
① Volume: Pipe sales increased year-on-year in 2023, and declined year-on-year in Q1. In 2023, Wujin Stainless sold 512,000 tons of seamless pipes, up 10.65% year on year; sold 35,500 tons of welded pipes, up 21.87% year on year.
2024Q1, the company sold a total of 11,600 tons of seamless pipes, down 3.43% year on year, and sold 0.71 million tons of welded pipes, down 25.63% year on year.
② Price: The company's gross margin has increased steadily. The average annual price of seamless pipes increased by 11.64% year on year, and the price of welded pipes decreased by 2.82% year on year. The company achieved a significant increase in operating income and net profit by increasing sales of high-end products and strengthening cost control. The company's gross margin has steadily rebounded, and the company's gross margin increased by 2.82pct to 17.12% in 2023. On a quarterly basis, 2024Q1 gross margin was 18.35%, up 4.09pct year on year and 2.12pct month-on-month.
Future core highlights: Product structure continues to be upgraded, demand for thermal power boiler tubes is gradually being released ① Thermal power boiler tube tenders continue to be released, and supply and demand for super stainless steel pipes is tight. The National Development and Reform Commission held a coal insurance and supply conference in September 2022, and proposed that the approval of about 80 million kilowatts (equivalent to 80 GW) every year in 2022 will bring 200 million kilowatts of new installed capacity in the next three years, and the upgrading of old coal power units will further boost demand for super stainless steel seamless pipes. However, the supply barriers between S30432 and HR3C are high, making it difficult for new manufacturers to quickly enter the boiler plant supply system. Supply flexibility is limited, which is expected to support the price of thermal power boiler tubes.
② The company actively increases production to seize opportunities for market recovery. The company is one of the leading enterprises in the domestic stainless steel pipe industry, with an original production capacity of 10,000 tons of thermal power boiler tubes. The company's 20,000-ton high-end stainless steel pipe project has now been put into operation, and the production capacity of thermal power boiler tubes can reach 30,000 tons after production.
③ Expand overseas markets and continuously upgrade the product structure. The company established a joint project with a domestic petrochemical giant to localize convection section furnace tubes for ethylene cracking furnaces. The commissioning of the company's 3,500-ton precision pipe production line will build a moat for the company's high profitability. The company has officially passed the Aramco supplier qualification certification. The approved product range includes stainless steel seamless pipes and welded pipes, which is conducive to further expanding the international market.
Investment advice: Benefiting from the increase in demand in the thermal power boiler tube industry and the continuous release of new production capacity, we expect the company to achieve net profit of 4.41/4.90/ 492 million yuan respectively in 2024-26, corresponding to the closing price on April 30. PE is 11, 10, and 10 times, respectively, maintaining the “recommended” rating.
Risk warning: project progress falls short of expectations; risk of rising raw material prices; downstream demand falls short of expectations, etc.