Summary of events: on August 25, the company released its semi-annual report of 2022: 2022H1, the company achieved revenue of 34.497 billion yuan, an increase of 18.9% over the same period last year; net profit of 187 million yuan, down 68.6% from the same period last year; and 155 million yuan of non-return net profit, a decrease of 74.2% over the same period last year. 2022Q2, the company achieved revenue of 19.292 billion yuan, an increase of 12.2% over the same period last year, an increase of 26.9% compared with the same period last year; net profit from the home was 56 million yuan, down 80.5% from the same period last year and 57.3% from the previous year; and the net profit from non-return was 21 million yuan, down 93.5% from the same period last year and 84% from the previous year.

Comments: the company's sales increased compared with the same period last year, and the gross profit margin decreased compared with the same period last year.

① volume: 2022H1 sales increased year-on-year, market share continued to expand. In the first half of 2022, the company was affected by the COVID-19 epidemic, the downstream demand was suppressed, the capacity utilization of important subsidiaries was not fully released, and logistics distribution was greatly affected, which was not conducive to the company's product sales. However, thanks to the release of new production capacity in Hancheng, Shaanxi, Liyang, Jiangsu, and Tangshan, Hebei, the overall production and sales scale of steel pipes continued to grow. The company sold 6.4087 million tons of all kinds of steel pipes, an increase of 18.68 percent over the same period last year, and its market share continued to expand.

② price: 2022H1 gross margin fell compared with the same period last year. The prices of raw materials and the company's products declined rapidly in the second quarter, taking into account the company's production cycle, products mostly consume high-cost raw materials, making 2022H1's gross profit margin fall by 2.14pct to 2.11% compared with the same period last year.

③ 2022Q2's homing net profit has declined compared with the same period last year, mainly due to the decline in the gross margin of the main business.

Future core focus: capacity expansion structural adjustment, equity incentives to promote the company's long-term development ① to promote the national strategic layout plan, the company's capacity continues to expand. With the production of Youfa in Shaanxi and Guoqiang in Jiangsu, and the gradual commissioning of the new Youfa project in Tangshan, the company's production capacity will continue to increase, and it is expected that the company's production and sales volume will reach 17 million tons in 2025, which will effectively expand brand influence and market share, and then enhance the company's sustainable profitability and comprehensive strength.

② Company speeds up the adjustment of product structure and enriches product category construction. The company actively arranges downstream scaffolding and climbing products. When the convertible bond project reaches production, it will increase the production capacity of 2 million tons of galvanized plate buckle scaffolding and 180000 tons of climbing scaffolding, speed up the extension of industrial chain, enrich category construction, optimize product structure and boost profitability.

③ equity incentive is launched to help the company's long-term development. In August 2022, the company announced "win-win No.1"

The stock option incentive plan, and the employee stock ownership plan of "Co-creating No.1" and "sharing No.1", and plans to add net profit assessment indicators to fully mobilize the enthusiasm of employees.

Profit forecast and investment advice: the company has always maintained a leading position in the industry. With the gradual launch of production capacity, we believe that the company's production and sales are expected to continue to increase, while product structure adjustment will further increase profits. The 2022-2024 net profit is expected to be 5.01,7.65 and 956 million yuan respectively, corresponding to the August 26 closing price of 19 times, 12 times and 10 times, respectively, maintaining the "recommended" rating.

Risk tips: raw material prices fluctuate sharply; industry capacity expansion exceeds expectations; industry production limits exceed expectations.