Investment points: in the first three quarters of 2019, the company achieved a total operating income of 16.615 billion yuan, a decrease of 10.96% over the same period last year, and a net profit of 974 million yuan, an increase of 84.12% over the same period last year. Among them, the total operating income in the third quarter was 6.269 billion yuan, down 20.19 percent from the same period last year, and the net profit was 380 million yuan, an increase of 49.65 percent over the same period last year and 12.67 percent from the previous quarter.

The contradiction between supply and demand of ferroalloy gradually emerged in the third quarter. According to Mysteel data, the national ferrosilicon output increased by 2.51% month-on-month in the third quarter, while the downstream steel output decreased by 0.84% month-on-month, and the contradiction between supply and demand of ferrosilicon is gradually reflected. Take the price of ferrosilicon in Ordos as an example, it fell again after rising in July, with the average price falling 9.60% in the third quarter compared with the same period last year, and 3.33% at the end of the quarter compared with the beginning of the quarter. In terms of silicon and manganese, national output increased by 9.97% in the third quarter compared with the same period last year. With the increase in production, the price of silicon and manganese began to fall from the beginning of July after rising in the second quarter. In the third quarter, the average price of silicon and manganese in Inner Mongolia fell 12.54% from the same period last year, and the price at the end of the quarter was 6.82% lower than that at the beginning of the quarter.

Minority shareholders' rights and interests are reduced, and the effective income tax rate is reduced. The company's gross profit margin in the third quarter was 24.36%, down 1.22 percentage points from the same period last year, and 2.13 percentage points lower than the previous quarter. On the one hand, the increase in the company's parent net profit compared with the same period last year was due to the completion of the 14.06% equity acquisition in power metallurgy in the first quarter, resulting in a 67 million yuan drop in minority shareholders' rights and interests compared with the same period last year. On the other hand, the company's effective income tax rate in the third quarter was 9.24%, 14.35% lower than the previous quarter, 21.16% lower than the same period last year, and 3.33% lower at the end of the quarter than at the beginning of the quarter.

Production of iron and steel is limited or lower than expected in the heating season, and the demand for ferroalloy is stable in the fourth quarter. Since October this year, 21 of the "26th" cities in Beijing, Tianjin and Hebei have lower PM2.5 concentrations than in the same period last year and have improved greatly. Considering the high base number of air pollution after November last year, the pressure to achieve the pollutant control target may be greatly reduced this year, which may also lead to relaxation of the enforcement of production restrictions in the heating season, higher-than-expected steel production, and stable demand for ferroalloys. The cashmere clothing plate is gradually strengthening. With the brand reshaping and channel upgrading, the domestic sales business is fully settled in the major online platforms at the same time. The brand reshaping strategies of ERDOS, Ordos 1980, BE and KIDS are very effective in terms of channel influence. In the first half of the year alone, there were 62 new channels for various brands and 40 channels for refurbishment and upgrading. With the arrival of the fourth quarter of strong demand, cashmere clothing is expected to bring higher profits.

Raise earnings forecast and maintain "overweight" rating. The company's "circular economy" model has strong advantages in raw material reserves and power costs. Due to the completion of the 14.06% equity acquisition of Electric Power Metallurgy this year, resulting in a reduction in minority shareholders' interests and a reduction in the effective income tax rate, we have raised our profit forecast. It is estimated that the net profit of homing from 2019 to 2021 is 14.87 yuan 14.96 / 1.517 billion yuan (originally 926 yuan 860 million yuan), corresponding to 1.09 yuan of EPS 1.10 pound, and the current share price is corresponding to the times of PE on 7-7-7. Maintain the "overweight" rating.