Event: the company reported that its operating income in the first half of the year was 40.544 billion yuan, an increase of 76.25% over the same period last year, and its net profit was 1.888 billion yuan, an increase of 141.78% over the same period last year. Of this total, the operating income in the second quarter was 22.935 billion yuan, an increase of 86.21% over the same period last year, and the net profit was 1.224 billion yuan, an increase of 98.6% over the same period last year.

Two blast furnaces of Guangxi Iron and Steel have been completed, and the product structure has been further enriched: at the end of 2020, the company completed the capital increase and holding of Guangxi Iron and Steel. By June 30, 2021, two blast furnaces of Guangxi Iron and Steel have been completed, and the actual production capacity of iron and water has reached 6.08 million tons per year. In the first half of 2021, the company achieved steel sales of 5.595 million tons, an increase of 34.2% over the same period last year. Among them, the total sales of medium and heavy plates and profiles of Liuzhou Iron and Steel Co., Ltd. was 4.8792 million tons, an increase of 17.04% over the same period last year. Guangxi Iron and Steel added 440200 tons of cold rolling sales and 270400 tons of hot rolling sales, driving the company's plate sales to 26.46% from 15.13% in 2020.

The volume and price of steel products rose, and the company's operating income reached an all-time high in the second quarter: in the first half of 2021, the prosperity of the iron and steel industry improved, and the price of steel products rose sharply. The average unit prices of plates and small profiles in the company's products were 4584 yuan and 4136 yuan per ton, up 37.79% and 31.86% respectively over the same period last year. The average unit prices of new cold rolling and hot rolling are 5196 yuan and 4801 yuan per ton (due to the increase in production capacity, there is no comparable year-on-year increase) Drive the company's operating income in the second quarter to reach an all-time high for the fourth quarter in a row.

The product structure optimization superimposed the low-cost strategy, and the net profit per quarter in the second quarter was close to the all-time high: in the first half of 2021, despite the sharp rise in raw material prices, the company implemented the strategy of low inventory and machine procurement by optimizing coal blending and ore blending, timely adjusting the production mode based on plate and slab, and reducing costs in production through process innovation, tackling key technical problems, tapping internal potential, and striving for preferential freight rates. The gross profit margin of the company's products is guaranteed to increase. The gross profit margin of the company's products in the first half of 2021 was 13.28%, the second highest level since 2008, and only slightly lower than the level of 2018 (14.39%). In the second quarter, the company achieved a net profit of 1.224 billion yuan, the third highest level in history and close to the highest level (of which Q4 reached an all-time high of 1.391 billion yuan in 2017 and 1.355 billion yuan in 2018).

Adhere to green development, per ton steel energy consumption to achieve the best level in history: to implement the "carbon peak, carbon neutralization" work requirements, adhere to green and low-carbon development. In the first half of the year, the comprehensive energy consumption of 505.82 kg of standard coal per ton of steel in Liugang was 34.75kg lower than that of the same period last year, the best level in history. The comprehensive energy consumption of iron and steel per ton of steel in Guangxi is 563.36 kg of standard coal, showing a downward trend month by month.

Profit forecast, valuation and rating: as a leading steel enterprise in Guangxi, Liugang shares has significant geographical advantages, and after holding Guangxi Iron and Steel, the company's product output increases and its structure is optimized. it is expected that the company's profitability will continue to improve in the future. to maintain the company's profit forecast, the 2021-2023 net profit will be 3.957 billion yuan, 4.086 billion yuan and 4.311 billion yuan, corresponding to EPS 1.54,1.59,1.68 yuan. Maintain the "overweight" rating.

Risk hint: Guangxi Iron and Steel new production capacity is not as expected; steel demand fell sharply in the second half of the year.