Maintain an “Overweight” rating. 2024Q1's revenue was 37.048 billion yuan, down 7.13% year on year; net profit to mother was 392 million yuan, down 43.13% year on year, slightly falling short of expectations. Considering that downstream demand for steel is still weak and the operation of steel companies is still under pressure, we lowered the company's net profit forecast for 2024-2026 to 45.68/50.30/5.673 billion yuan (originally 5.968/64.19/6.526 billion yuan), which corresponds to EPS of 0.66/0.73/0.82 yuan. Referring to comparable companies, we gave the company a PB valuation of 0.75 times in 2024, lowered the target price to 6.13 yuan (originally 6.61 yuan), and maintained the “gain” rating.
The negative factors have gradually subsided, and 2024Q2 results are expected to pick up. The main reasons for the year-on-year decline in the company's 2024Q1 performance include: the raw fuel inventory cycle is long compared to coastal steel companies, and the price of raw fuel for storage is relatively high; the adjustment from the “fine material policy” to the “combination of fine materials and economic materials policy” affects the cost of molten iron; maintenance of blast furnaces and some production lines and equipment, affecting steel production and sales; and weakening downstream demand in the industry. The negative factors above 2024Q2 are expected to gradually subside or improve, and we expect the company's performance to pick up.
The product structure is continuously optimized. In 2023, the company sold 16.83 million tons of key steel varieties, accounting for 63%, up 3 percentage points from month to month, with a cumulative increase of 31 percentage points over 2016. The subsidiary VAMA Phase II high-end automobile plate project and the Valin Liangang Steel Phase I one-step project have been put into operation at the end of 2022 and June 2023, respectively, adding 450,000 tons/year galvanizing production capacity (original production capacity 1.15 million tons/year), 200,000 tons/year of unoriented silicon steel products, and 90,000 tons/year oriented silicon steel semi-finished product production capacity, all of which are expected to reach production in 2024; the share of special steel sales in industrial wire bars will rise from 10% in early 2022 to around 20% by the end of 2023, respectively. It will rise further to 25%-30% . The company's silicon steel phase II is expected to be completed and put into operation in early 2025, and the company's product structure will continue to be optimized.
The dividend ratio is among the highest in the industry, and there is still room for improvement in the future. The company's dividend ratio in 2023 was 31.29%, up 5.3 percentage points from month to month; the corresponding dividend rate was 5.13%, ranking among the highest in the industry. We expect that in the future, with the completion of the company's new production line and ultra-low emission renovation projects, there is still room for improvement in its dividend rate.
Risk warning: The progress of projects under construction falls short of expectations, and demand has dropped sharply.