Key points of investment:
Vigorously develop advanced steel materials, continue to consolidate market leading advantages, companies continue to increase investment in R&D, focus on breakthroughs in advanced steel materials production and research, and establish leading advantages in various segments. 9Ni steel and ultra-high strength wear-resistant steel sheets have successively won “single champion” products in the manufacturing industry, breaking the situation of dependence on foreign imports, and leading the market share of related products. In 2023, the company sold 2.5879 million tons of advanced steel materials, accounting for 25.06% of the company's steel sales and contributing 41.98% of the gross profit of the steel business. As the company vigorously develops advanced steel materials, high-value-added products will continue to strengthen the competitiveness of the company's product market and enhance the resilience of the company's performance.
We have established ecological customer partnerships, actively exploited overseas high-end market companies, and accumulated a large number of high-quality and stable leading customer resources. With outstanding product reliability and service capabilities, they have formed a reputation and influence in key fields such as shipping, oil and gas, and exclusively supplied China's first large-scale domestic cruise ship “Aida Mordu”, supplying over 300,000 tons of ultra-low temperature nickel-based steel, and established close cooperative relationships with downstream high-end customers. At the same time, the company is also focusing on overseas markets. In 2023, the company exported 1.2 million tons of steel, an increase of 85% over the previous year. It participated in many large-scale international high-end projects such as the Saudi Aramco oil pipeline, deepened cooperation with many leading global companies in the pipeline, wind energy, petroleum, etc., and continuously strengthened its efforts to develop new markets.
The supply and demand relationship in the steel industry has improved, and steel companies' profits may bottom out, and the steel industry is continuing to further push forward supply-side structural reforms and consolidate the results of overcoming overcapacity. Crude steel production remained flat year on year in 2023, showing determination to control production. In 2024, five departments including the National Development and Reform Commission will continue to carry out national crude steel production control work to promote structural adjustment and optimization in the steel industry; on the other hand, in the context of China's continued economic improvement, the steel sector for manufacturing automobiles, ships, home appliances, etc. will continue to contribute incrementally. With policy support, the steel sector for manufacturing infrastructure will continue to increase. Offset the impact of shrinking demand for steel for real estate; in addition, according to the World Steel Association's forecast, global steel demand will rebound 1.7% in 2024, which is beneficial to China's steel export situation. We predict that steel consumption is expected to stabilize in 2024, the relationship between steel supply and demand will improve, and steel companies' profits may bottom out due to factors such as the development of steel products in the direction of high-end and high added value.
Profit forecasts and investment suggestions:
The company's net profit for 2024-2026 is estimated to be 2,468/27.18/3.12 billion yuan, respectively, and the corresponding EPS is 0.4/0.44/0.51 yuan/share. We believe that the company can still maintain steady operation at the bottom of the industry's profit, has resilient performance, and has established a leading edge in fields such as special sheets. At the same time, the company lays out new industries upstream and downstream around steel, exploiting the potential for performance growth, adding that the company focuses on rewarding shareholders, continues to pay a high percentage of dividends and shortens the dividend cycle until half a year. The valuation level is expected to further improve. Coverage for the first time will give the company a “buy” rating.
Risk warning
(1) Steel prices fall short of expectations; (2) Product structure upgrades fall short of expectations; (3) Product exports fall short of expectations; (4) Product production falls short of expectations; (5) Indonesia's coke project falls short of expectations.