Introduction to this report:
During the downturn in the industry, the company achieved loss reduction through measures such as efficient collaboration, cost reduction and efficiency; moreover, 24Q1 net profit changed from loss to profit. As the company continues to improve quality and efficiency, its profitability is expected to increase further.
Key points of investment:
Maintain an “Overweight” rating. 2023 and 24Q1 revenue was 796.65 billion yuan or 19.088 billion yuan, down 1.31% year on year and up 16.45% year on year; net profit to mother - 10.12 billion yuan, up 56.78% year on year and down 86.04% year on year; performance was in line with expectations. Considering that demand is still weak, the company's operations continue to be under pressure. The net profit forecast for 24-25 was lowered by 207/306 million yuan (originally 15.6/1,842 million yuan), and the net profit forecast for 26 years was increased by 407 million yuan, corresponding to EPS 0.08/0.12/0.16 yuan. Referring to comparable companies, the 2024 PB valuation was given at 0.98 times, and the target price was lowered to 3.43 yuan (previously 5.28 yuan), maintaining the “gain” rating.
The company's volume profit rose sharply, changing from loss to profit. In 2023, the company's steel production was 12.8 million tons, up 8.19% year on year; steel sales volume (including steel billets) was 19.6 million tons, up 12.37% year on year. The company's gross profit margin and net profit margin in 2023 was 2.06%, -1.64%, up 3.00 and 2.74 percentage points from the previous month; the 24Q1 gross profit margin and net margin were 4.99% and 0.19%, up 2.93 and 1.83 percentage points from 2023.
During the downturn in the industry, the company achieved loss reduction through measures such as efficient collaboration, cost reduction and efficiency; moreover, 24Q1 net profit changed from loss to profit. As the company continues to improve quality and efficiency, its profitability is expected to increase further.
There is still room to increase the scale of production and sales. According to the company's 2023 annual report, the cold-rolling mill of the holding subsidiary Guangxi Iron and Steel has completed 70% of the new refining unit project and the new pickling unit project. As the project is gradually completed and put into operation, the company's production and sales scale is expected to increase further. According to the company's 2023 annual report, its 2024 steel production target (including cold-rolled substrates) was set at 16.69 million tons.
Industry demand is not pessimistic. Although real estate is still declining, it is still a major drag on the increase in steel demand, but after two years of decline, the share of real estate demand has fallen below 20%, and the negative drag of real estate on steel will decline. Furthermore, infrastructure and manufacturing maintain a steady growth trend, which is expected to hedge against the decline in the real estate side. We don't think there is any need to be too pessimistic about 2024 steel demand.
Risk warning: Demand has dropped sharply, and raw material prices have risen sharply.