Strong supply and demand in the steel industry are weak, and the company's performance is under pressure

Hanggang Steel Co., Ltd. is the backbone of the steel industry, and its steel products are widely used in various industries such as construction and automobiles. In 2023, the domestic steel industry as a whole showed a trend of strong supply and weak demand. Steel prices fluctuated at low levels, and prices of major raw materials such as superimposed iron ore and energy prices remained high. Steel companies were under pressure to operate, and profit margins were squeezed. It is expected to achieve net profit of 168 million yuan in 2023. Compared with the same period of the previous year, it will decrease by 31.84 million yuan, or about 64.99% compared with the same period last year. Faced with the severe market situation, although the company insisted on implementing a “low cost and high efficiency” business strategy, stepped up efforts to reduce costs and increase efficiency, and strived to maximize corporate efficiency, due to the impact of the industry environment, the company's performance declined sharply from year to year.

The data center is being built steadily, creating a new engine for growth

In terms of digital transformation, Hanggang Steel Co., Ltd. cooperated with Alibaba Cloud to jointly invest 15.8 billion yuan to build a cloud computing data center in Zhejiang, showing the company's in-depth layout in the field of new infrastructure. By the end of June 2023, the data center project had 2,233 cabinets, and the number of servers on the shelves was about 16,146. Revenue from emerging businesses such as Internet data centers and cloud computing increased 19.2% year-on-year. This transformation strategy not only provides solid infrastructure support for large cloud service providers such as Alibaba Cloud, but also provides a technical foundation for the “Zhejiang on the Cloud” strategy. By strengthening the construction and operation of Xinchuang Cloud, it has successfully signed contracts with key enterprises in various industries, such as provincial guarantees, to help achieve “cloud use in the cloud” for enterprise applications in provincial countries.

Data center construction, a new engine for growth

Hanggang Steel Co., Ltd. proposed a “digital Hanggang” construction goal, embarking on the transformation path from “making iron to steel” to “refining into metal”, building an integrated intelligent control platform with “portal integration and data empowerment” as the main focus, enabling the interconnection and data sharing of corporate governance application systems in various fields, and providing strong support for digital decision-making. Hanggang Steel's data center project has an ambitious plan. The goal is to build 10 data center buildings, designed to accommodate 10,800 server cabinets, and is expected to run 200,000 servers; by the end of May 2023, the construction and operation of the northern area of the Zhejiang Cloud Project is progressing steadily. The B data building has already installed 12,000 servers, the C data building has passed third-party verification tests, and the A data building is undergoing third-party verification tests.

As the cloud computing market continues to expand, the company's IDC business is expected to be an important driver of future revenue and profit growth.

Profit forecasting

As the cloud computing market continues to expand, the company's IDC business is expected to be an important driver of future revenue and profit growth. The company's revenue for 2023-2025 is 520.55, 621.88, and 73.481 billion yuan, respectively, and EPS is 0.05, 0.17, and 0.26 yuan, respectively. The current stock price corresponds to PE of 117, 33, and 22 times, respectively. It is recommended for the first time, giving it a “buy” investment rating.

Risk warning

IDC's progress fell short of expectations; future fluctuations in steel prices affect the company's business profits, etc.