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Haitong International released a research report saying that the net export volume of 2024Q1 equivalent to the caliber of crude steel is about 24.98 million tons, a year-on-year net increase of 6.12 million tons, a year-on-year growth rate of 32.Cosmicbingo.44%, net exports greatly digested the pressure on domestic production capacity. Domestic steel companies are less profitable, forcing them to look for exports. Using crude steel output and net export to estimate domestic crude steel apparent demand, the results show that 2024Q1 domestic crude steel apparent consumption decreased by about 4.73%. In addition, from the steel plate (Shenwan) PB trend in the past 24 years, the current steel plate PB valuation is already at the bottom of the region; global comparison, A-share steel companies PB valuation is in the middle, the more expensive are the United States and Taiwan, European and Russian steel companies valuation is significantly lower.

Suggested attention: Baosteel (600019) (600019.SH), Valin Iron and Steel (000932) (000932.SZ), Nanjing Steel (600282) (600282.SH), CITIC Special Steel (000708) (000708.SZ), Shougang (000959) (000959.SZ) and so on.

The main points of Haitong International are as follows:

The decline of 2024Q1 revenue is greater than that of cost, and the gross profit margin is lower.

The income of listed steel companies fell with the fall in steel prices. The total income of 2023Q4 listed steel enterprises was 509.8 billion yuan, down 0.77% from 2023Q3, 483.6 billion yuan from 2023Q3, 5.14% from 2023Q4, 463.3 billion yuan from 2024Q1, and 4.24% from 2023Q4. The decline in revenue is greater than that in costs, and the gross profit margin is down.

The total net profit of 2024Q1 steel plate fell by 104 per cent. The decrease in 2024Q1 cost is less than that in revenue, and the gross profit margin is lower. The total net profit of 2023Q4 was 5.206 billion yuan, which decreased by 47.29% compared with the previous month. The total net profit of 2024Q1 listed steel companies was-220 million yuan, down 104 per cent from the previous month. Among them, the net profits of 2023Q4 and 2024Q1 of Baosteel shares were 3.594 billion yuan and 1.926 billion yuan respectively, which also decreased compared with the previous month.

Profits of 2024Q2 steel sector improved month-on-month

Haitong International pointed out that if the same day's steel prices, mineral prices, coking coal prices are used to calculate profits, it will be found that the gross margin of 2024Q1 tons of steel is relatively weak. However, steel companies often have ore and coking coal stocks for half a month to a month or more, so the actual financial accounting often varies greatly; gross margin per ton of steel fluctuates with supply and demand. It bottomed out in January 2024, returned to this high at the end of April, and then turned down again; the profit margin of steel companies surveyed by Mysteel climbed from 21.21% on March 15, 2024 to 52.81% on May 3. The average profit rate of steel enterprises in the second quarter is significantly higher than that in the first quarter.

Plate financial health

As of 2024Q1, the total debt of listed steel enterprises is 1.2272 trillion yuan, with a debt ratio of 57.37%, which has been stable at this level for several consecutive years, and the debt ratio has dropped by about 11 percentage points from the peak in 2016. For the second time in the history of net cash flow of operating activities, the debt ratio has been negative. From 2002 to 2024Q1, there were two times that the cash flow was negative, once the Q1 was-8.2 billion yuan in 2023, and the second time the cash flow of 2024Q1 operation was-12.5 billion yuan. There are still a lot of investment activities. From 2021 to 2023, the net cash flow of investment activities was 87.2 billion yuan, 98.6 billion yuan and 76.3 billion yuan respectively. In the past 22 years, the proportion of expenses to income has gradually declined. Research and development expenses have been listed separately since 2018, and even so, the three expenses, including R & D as a share of sales revenue, have been at a low level in the past 24 years. R & D expenses and sales costs fluctuate greatly, which has become an important factor affecting performance.

Plate ROE and ROA are at a low level.

Haitong International believes that the asset income of the iron and steel plate fluctuates greatly, 2024Q1 steel enterprises as a whole are below the historical average, and special steel is better than General Steel. In the past decade, the efficiency of inventory management has improved, the turnover rate has increased from about 6 times to around 8 times, and has a downward trend in the last two years; the total asset turnover ratio and net asset turnover ratio have basically remained at the middle level.

Risk tips: policy risks, external risks, etc.