Incident: In the first quarter of 2024, the company achieved operating income of 37.048 billion yuan, -7.13% year-on-year; realized net profit of 392 million yuan, or -43.11% year-on-year.
From the perspective of total profit, the company's overall competitive advantage remains. (1) The total profit of the Q1 company fell 21.5% year on year to 906 million yuan. According to the China Steel Association's key statistics, the profit of steel companies fell 48% year on year, while the national ferrous metal smelting and rolling processing industry lost 21.4 billion yuan, an increase of 16.5 billion yuan; (2) Q1's profit before tax per ton of steel was about 137 yuan (assuming that Q1 steel production was 1/4 of 2023), and the national steel industry's profit before tax per ton of steel was -83 yuan. Compared with the entire industry, the company still has an excess profit of 220 yuan/ton compared to the entire industry.
The competitiveness of important holding companies is still being strengthened. (1) The profit and loss of minority shareholders of Q1 Company was 330 million yuan, up 14% year on year; (2) The profit and loss of minority shareholders of the Company for the full year of 2023 was 1.6 billion yuan, of which minority shareholders' profits and losses belonging to Auto Board Company (VAMA), Valin Steel Pipe, and Valin Finance Company were 1,237 million yuan, 119 million yuan, and 56 million yuan respectively, indicating that the competitiveness of important Q1 holding companies is still being strengthened.
The profitability of other sectors has been adjusted. (1) The Q1 company's net profit fell 26% year on year, exceeding the 4.64 pct decline in total profit. The main reason was that the income tax rate increased by 5 percentage points to 20% year on year. The Q1 corporate income tax rate was the highest value in a single quarter since Q1 in 2020; (2) the Q1 company's net profit to mother fell 43% year on year, which exceeded the drop in net profit of 17 pcts; (3) the company's net profit/total profit in the first quarter was 43%, the lowest value in a single quarter since 2017, down 16 percentage points year on year.
The amount of inventory has increased. Q1 inventory reached a record high of 14.9 billion yuan (up 2% month-on-month and 11% year-on-year), accounting for 40.15% of revenue in a single quarter, a record high since Q2 2020.
The process of high-end production of the company's products continues: (1) The second phase of the automobile plate project was completed and put into operation in 2023, adding 450,000 tons of annual galvanizing production capacity, and striving to reach production in 2024; (2) the first phase of the silicon steel finished product project was put into operation at the end of June 2023. The products are all positioned as medium to high grade unoriented silicon steel products. In 2024, it will form 200,000 tons of unoriented silicon steel products and 90,000 tons of semi-finished silicon steel production capacity; (3) In March 2024, it was announced that it will invest 900 million yuan to build a 500,000 ton galvanized production line (500,000 tons of galvanized zinc plating production line) Mainly used for high-end cold-rolled home appliance panels), The construction period is 14 months.
Profit forecast, valuation and rating: As the steel industry continues to be deeply adjusted, we lowered the company's net profit forecast for 2024-2026 by 28.20%, 10.53%, and 8.33% to 38.37, 53.87, and 6.279 billion yuan, respectively. However, as a leading company in the steel industry, Valin Steel has an outstanding competitive advantage, and the variety structure is expected to be further advanced, maintaining the company's “gain” rating.
Risk warning: Prices of raw materials remained high; downstream demand for steel fell beyond expectations.