Introduction to this report:
The company's welding products have a certain competitive advantage. Later, the completion and commissioning of its “0.6 million ton high quality welded pipe and factory prefabricated deep processing pipe fittings” project will help further enhance the competitiveness and profitability of the company's overall products.
Key points of investment:
Maintain an “Overweight” rating. Considering that overall downstream demand for real estate and infrastructure is still weak, we lowered the company's net profit forecast for 2024-2025 to 0.287/0.332 billion yuan (originally 0.388/0.467 billion yuan), and added the 2026 net profit forecast to be 0.382 billion yuan, which corresponds to EPS of 0.55/0.64/0.73 yuan. Referring to comparable companies, the company was valued 11 times PE, and the target price was lowered to 6.05 yuan (originally 7.62) to maintain the “gain” rating.
Product competitiveness is expected to continue to improve. The company is one of the leading suppliers of welded steel pipes in China, with a production and sales scale of about 1 million tons. The “0.6 million ton high quality welded pipe and factory prefabricated deep processing pipe and pipe fittings” project under construction by the company is still in progress. The total planned investment amount is 0.68 billion yuan. The estimated construction period is 3 years. We expect that after completion, the project will help further enhance the company's overall product competitiveness and profitability.
Cost pressure is expected to ease. The company's main raw materials are hot-rolled coils, and the cost accounts for a high proportion of the production cost of the company's main products. According to Mysteel data, in the third quarter of 2024, as of August 23, 2024, the average price of 4.75mm hot-rolled coils in Shanghai was 3470.50 yuan/ton, down 9.00% from 2024Q2, and the decrease was greater than the 5.24% and 5.11% month-on-month drop in the price of welded pipes and galvanized pipes. We expect the company's cost pressure to gradually ease, which will help its profit level to rise.
It has a strong competitive advantage in products, and the scale of production and sales has bucked the trend. The company attaches importance to technology research and development. It has R&D platform carriers such as nationally certified enterprise technology centers, provincial enterprise research institutes, provincial engineering technology research centers, etc., with complete scientific research instruments and equipment, accounting for about 15% of R&D personnel. We believe that the company's advanced process technology and strong R&D capabilities have combined to create its product competitiveness and brand advantage, and it is because of this that the company's production and sales can maintain contrarian growth.
Risk warning: The progress of projects under construction falls short of expectations, and demand is weakening sharply.