2023 and 1Q24 results are in line with our expectations
The company announced 2023 results: 2023 revenue of 344.5 billion yuan, -6.3% YoY; net profit to mother was 11.94 billion yuan, -1.99% YoY. 1Q24 revenue was RMB 80.81 billion, +2.8% YoY, and net profit attributable to mother/ net profit after deduction of RMB 1,926/15.75 billion, respectively, or +4.4%/-4.1% YoY. The company's 2023 and 1Q24 results were in line with our expectations.
1) Steel production and sales remained high, and profits showed strong resilience. In 2023, the company's steel production and sales volume was 5194/51.9 million tons, respectively; the gross profit of comprehensive tonne steel was 208 yuan/ton, +5 yuan/ton year on year. Among them, the gross profit of cold-rolled steel pipe/long tonne steel increased by 118/192/32/yuan/ton, respectively. Steel sales and profits increased steadily, showing resilience in the face of the downward cycle. 2) Cost pressure dropped significantly during the period, and cost control capabilities continued to be optimized. Sales/management/financial expenses for 23 tons of steel were 34.3/82.2/19.1 yuan/ton, respectively, -4.5%/-6.0%/-38.4% year-on-year. 3) Asset quality was further improved, and operating cash flow declined year-on-year. The balance ratio and net debt ratio for the year 23 was 41.5%/11.8%, -4.3/-0.1ppt; net operating cash flow was 25.3 billion yuan, or -43.4% year over year, mainly due to a sharp decrease in the company's operating payables. 4) The high dividend policy continues, and the investment value is evident. The company announced that it plans to pay a dividend of 0.31 yuan per share in 2023, with a dividend rate of 56.8%. The company will maintain a dividend ratio of at least 50% for many years.
Development trends
The industry trough highlights the competitive advantage of core assets, and steel core assets are stable and far-reaching. 1) The collaborative advantages of “one company, multiple bases” have been demonstrated, laying the foundation for long-term growth. The net profit of the company's Dongshan/Aoyama/Meishan bases in '23 was +1.4/-0.1/+4.7 billion yuan, respectively, and base supply, production and marketing collaboration was further strengthened. At the same time, the company's production capacity expansion progressed steadily, taking a domestic stake in the Rizhao base and setting up a Saudi thick plate base overseas. As the company's global layout gradually unfolds, we are optimistic that the company's production capacity will continue to expand and achieve long-term growth with excellent multi-site operation genes. 2) The high-value-added product group continues to expand: sales volume of “1+1+N” products increased by +10% year-on-year to 27.92 million tons, and cold-rolled automobile plates and oriented silicon steel maintained a high market share.
In addition, the company's silicon steel-oriented (two-step) project is expected to be put into operation in 3Q24, adding 75,000 tons of silicon steel production capacity. We are optimistic that the profitability of the company's steel products will steadily increase along with the upgrading of the product structure.
The non-steel business went hand in hand, and diversified development ironed out the cyclical nature of profits. The company continues to expand non-steel businesses such as import and export trade/industrial software/new chemical materials/etc. In 2023, the company's export contract volume reached a record high of 5.837 million tons. Baosteel International/Baoxin Software/Baowu Carbon achieved a total net profit of 4.76 billion yuan, accounting for 28.3% of the company's net profit after equity conversion, helping to further weaken the company's profit periodicity.
Profit forecasting and valuation
Considering the recovery in the manufacturing industry, we kept 24e net profit unchanged and raised 25e net profit to 15.71 billion yuan by 8.5%. The current stock price corresponds to 24/25e 11.2x/10.0x P/E. Considering that the company's profits remain resilient and valuation repair can be expected, we maintained an industry performance rating and raised the target price by 22.5% to 9.05 yuan (corresponding to 24/25e 14.1x/12.7x P/E), implying 27.6% upward space.
risks
The real estate boom has surpassed expectations, and the global economy is declining at an accelerated pace.