Net profit to mother in '23 was +15.82% year-on-year, downgraded to “holding” rated company with revenue of 1,454 million yuan (yoy +5.92%) in '23, and net profit of 235 million yuan (yoy +15.82%), which is in line with the previous performance forecast of 215-250 million yuan. Considering weak steel consumption and pressure on iron ore prices, we expect the company's EPS to be 0.37/0.38/0.39 yuan respectively in 24-26 (previous value 0.49/0.50/- yuan). Comparatively, the average PE (2024E) value of the company was 14.4X. The company was given a PE valuation of 14.4 times in 24 years, corresponding to the target price of 5.33 yuan (previous value 7.20 yuan). Considering that there was no significant recovery in steel consumer demand, iron ore prices were still under pressure and lowered to a “hold” rating.
The production and sales volume of iron powder remained flat in '23, and the price of iron powder was +2.0%. According to the company's annual report, the company produced 1.0507 million tons (yoy -0.07%) and pellet ore produced 276,800 tons (yoy +44.5%) in '23. Iron ore prices have been strong since May. The company's ferrous metal sector gross margin was 24.59% (yoy+0.49pct); the main product in '23, the average price of iron powder was 961 yuan/ton (yoy +2.0%), unit cost 708 yuan/ton (yoy -2.0%), unit gross profit 253 yuan/ton (yoy +15.1%), average unit price of pellet ore was 1,071 yuan/ton (yoy -15.3%), unit cost 963 yuan/ton (yoy -11.8%), unit gross profit of 108 yuan/ton ton (yoy- 37.6%).
The cost ratio for the period declined further. Net sales margin was +1.39 pct year over year. According to the company's annual report, the company's gross sales margin in '23 was 22.15% (yoy+1.03pct), and the period expense ratio was 8.39% (yoy-1.44pct). Among them, the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were -0.01, -1.04, -0.22, and -0.16 pct, respectively. The company's net sales margin was 16.51% (yoy+1.39pct).
The company announced a shareholder return plan for the next three years (2024-2026). The company plans to pay a dividend of 1.2 yuan for every 10 shares in 23 years, with a dividend rate of about 30.4%. In addition, the company announced a shareholder return plan for the next three years (2024-2026). The company's annual cash dividend ratio is not less than 10% of the distributable profit for the current year, and considering the company's development stage and capital expenditure schedule, the dividends will be further increased when the development stage is mature or there are no major capital expenditure arrangements; at the same time, under conditions, the board of directors can propose interim profit distribution to enhance reasonable returns to shareholders.
Imports from Ukraine and India have increased. Concerned about steel consumption, iron ore prices, or weak operating supply, according to the General Administration of Customs, China's iron ore imports continued to be at the highest level in the same period since 2018 in January-January. Among them, imports from Ukraine returned to a medium to high level during the same period in February, and India's imports also increased further, contributing to the increase in imports. On the demand side, domestic demand for steel recovered weakly after the holiday season. Demand for steel for construction was relatively sluggish, and demand for steel in manufacturing recovered moderately. However, steel inventories were high, and the industry entered a phase of active storage and negative feedback. Average daily iron and water production declined, iron ore demand was under pressure, and prices were weak. Looking back, we need to pay more attention to the recovery in consumption.
Risk warning: Downstream demand falls short of expectations, and industry policies have changed.