Introduction to this report:

Processing costs in the cold-rolled stainless steel industry have bottomed out, and downstream export demand for household appliances is strong, driving the processing costs of precision stainless steel products to stabilize. With the release of the company's production, we expect the company's performance to continue to grow.

Key points of investment:

Maintain an “Overweight” rating. Demand for stainless steel is rising steadily, and processing costs in the stainless steel cold rolling processing industry may gradually bottom out. The company's net profit forecast for 2024-2026 was raised to RMB 6.16/6.57/748 million yuan (previously RMB 528/627/715 million yuan), and the corresponding EPS was 1.68/1.79/2.04 yuan, respectively. Considering the decline in the valuation level of companies in the same industry, the company's target price of 24.84 yuan was maintained, and the “gain” rating was maintained.

The bottom of the industry is gradually being established, and the company's single-ton profit may have bottomed out. According to data from the Stainless Steel Branch of the Iron and Steel Association, in the first quarter of 2023 and 2024, China's apparent consumption of stainless steel was 310.8.22 and 7.3084 million tons respectively, up 10.56% and 2.87% year-on-year respectively, and stainless steel consumption continued to grow. From a downstream perspective, demand for cold-rolled stainless steel is rising steadily in the important downstream home appliance industry.

From January to April 2024, the year-on-year growth rates of China's air conditioning and refrigerator production were 17.60% and 14.10%, respectively, and the export growth rates were 12.2% and 30.3% respectively. Domestic and export demand for household appliances was strong.

In each quarter of 2023 and 24Q1, Yongjin Co., Ltd.'s gross profit per ton was 749, 674, 609, 679 and 638 yuan/ton, respectively, and the net profit for a single ton product was 197, 173, 131, 158 and 175 yuan/ton respectively. Judging from the trend of recovering industry demand, 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.

The company's production will continue to be released over the next two years. 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, and 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.

In the medium term, the company's Jingjiang Yongjin 400,000 tons, Vietnam Yongjin Phase I 80,000 tons, and Vietnam Yongjin Phase II 180,000 tons projects are scheduled to reach trial production in October 2024, May 2024, and May 2025, respectively. The company's production capacity continues to rise, and production is expected to continue to be released.

The titanium project continues to advance. The company's titanium and nickel-plated steel strip project began construction in May 2023, and is expected to reach the trial production stage in June 2024. With its excellent performance, titanium is gradually being applied in the field of consumer electronics, and demand is expected to continue to grow. Pre-nickel-plated steel strips, on the other hand, have higher strength, and it is expected that applications in the battery field will gradually open up.

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