19Q3 made a profit of 117 million yuan, downgraded to a “neutral” rating. On October 24, Bayi Steel released its 2019 three-quarter report: 19 Q1-Q3 operating income of 15.49 billion yuan (YoY +0.7%); net profit attributable to parent company shareholders of 240 million yuan (YoY -58.4%); 19Q3 operating income of 5.95 billion yuan (YoY -17.0%, QoQ +5.9%); net profit attributable to shareholders of the parent company was 117 million yuan (YoY -67.8%, QoQ -63.2%), performance It fell short of our expectations. We believe that the same and month-on-month decline in the company's Q3 performance was mainly due to the continued high price of raw materials. We lowered our early profit forecast. We expect the company's EPS for 19-21 to be 0.19/0.23/0.27 yuan (previous value 0.31/0.38/0.43 yuan), and the target price will be reduced to 3.10-3.38 yuan, to a “neutral” rating. Prices of raw materials increased, reducing profit margin by 19Q3, with production and sales volume of 1.32 million tons (YoY-9.1, -13.3%, QoQ-5.5, +10.5%); the average price of iron powder and Australian ore in Tangshan during the same period (excluding tax) was 708 and 733 yuan/ton (YoY+190, +310 yuan/ton, QoQ+87, 130 yuan/ton), reducing profit space. 19Q1-Q3, the company's gross sales margin was 9.6% (YOY-3.5pct); 19Q3 sales gross margin was 10.4% (YOY-5.0pct, QoQ-2.7pct). In 19Q1-Q3, the company's sales, management, R&D, and financial expenses changed by -2%, +36%, -5%, and -19%, respectively. The increase in management expenses was mainly due to increased security and greening expenses, while the decline in financial expenses was mainly due to increased capital liquidity, which led to an increase in the company's interest income. In 19Q3, the company's sales, management, R&D, and financial expenses changed by -29%, +29%, +27%, and -11%, respectively. The company's repayment capacity increased, and the balance ratio declined by 19 Q1-Q3. Cash received from the company's sales of goods and services accounted for 102.3% of operating income, up from +14.9 pct in the same period last year, improving its ability to repay; net cash flow from operating activities decreased 108% year on year, mainly due to rising raw material prices, and the company increased its raw material payments. In the same period, the company's accounts receivable and payable projects decreased by 7.1% and 5.7%, respectively, compared to the beginning of the period, and its ability to account for downstream payments increased. Furthermore, the company's balance ratio continued to decline. The balance ratio at the end of 2019Q3 was 77.6%, down 0.44 pct from the end of 2019Q2. Domestic demand or decline in the fourth quarter. The company's performance may be slightly pressured. In 2018, Xinjiang's fixed asset investment growth target was 15%, and the actual annual growth rate was -25.2%, which is poor; in 2019, the fixed asset investment growth rate in Xinjiang was 5%, and the growth rate in the first September was 6.1% (YoY+49pct). The degree of completion is good. Considering the high base for the second half of last year, Xinjiang may achieve the full year target this year. However, Xinjiang is located in the northwest mainland. Winter and spring are cold. Only summer and autumn are warm and suitable for construction. This is the peak season for steel demand in the country. During the peak season, the company's products are mainly aimed at the domestic market. During the off-season, the proportion of sales to overseas regions increases. Domestic demand may have declined in the fourth quarter, and the company may increase its share of overseas sales, and the increase in sales expenses may put a slight pressure on performance. High costs put pressure on the company's performance. Since raw material prices are still high, we lowered the company's profit forecast. We lowered the company's profit forecast. EPS for 19-21 is 0.19/0.23/0.27 yuan (previous value 0.31/0.38/0.43 yuan), corresponding PE is 17.53/14.20/12.11 times, and PB is 1.15/1.07/0.98 times. The average PB (2019E) of comparable companies is 1.03. Considering that the company is a leading steel company in China, the company was given a PB valuation of 1.1 to 1.2 times that of 2019. The 2019 forecast for BPS was 2.82 yuan, corresponding to a target price of 3.10 to 3.38 yuan, which was lowered to a “neutral” rating. Risk warning: macroeconomic situation and policy adjustments at home and abroad; domestic and foreign demand falls short of expectations, etc.