Key investment performance summary: The company released the 2019 annual report. During the reporting period, the company achieved operating income of 48.620 billion yuan, a year-on-year increase of 2.68%; realized net profit attributable to shareholders of listed companies of 2,347 billion yuan, a year-on-year decrease of 49.09%, equivalent to EPS of 0.92 yuan. The EPS for the four quarters was 0.15 yuan, 0.35 yuan, 0.09 yuan and 0.33 yuan respectively; the company plans to base the final total share capital of 2,563 billion shares, with a cash dividend of 4.5 yuan (tax included) for every 10 shares, with a dividend ratio of 49.14 billion yuan %, dividend rate 9.05%. In addition, the company announced a preliminary performance reduction announcement for the first quarter of 2020. 2020Q1 is expected to achieve net profit of 128-175 million yuan, a year-on-year decrease of 54.31%-66.58%, equivalent to an EPS of 0.05-0.07 yuan. Operating data: The company's iron, steel and material production in 2019 reached 12.46 million tons, 13.67 million tons and 8.09 million tons respectively, up 2.52%, 4.50% and 5.69% year on year. Due to the mismatch between the production capacity of the company's billets and steel, we used the total sales volume of medium-sized materials, medium plates, small materials and billets to estimate the price of tonnes of steel at 3,354 yuan, the cost of tonnes of steel at 3,026 yuan, and the gross profit per ton of steel at 328 yuan, with year-on-year changes of 124 yuan, 366 yuan and -242 yuan respectively. Among them, the gross profit of medium plate and small steel tonnes decreased by 322 yuan, 268 yuan to 500 yuan and 637 yuan, respectively. The gross profit of billet tonnes of steel increased by 39.14% and 29.56%, respectively. yuan. Financial analysis: The company's comprehensive gross profit margin in 2018 was 9.76%, down 4.63% year on year, mainly due to rising raw fuel prices and increased production costs, which squeezed the company's profits. The period cost rate was 4.12%, an increase of 1.54 PCT over the previous year, and the period cost of a ton of steel increased 55 yuan to 147 yuan. Among them, sales expenses increased 104.95% year on year due to a sharp increase in railway freight, R&D expenses increased 423.72% year on year, and financial expenses decreased 84.29% year on year. The net profit margin was 4.83%, down 4.91 PCT year on year, and net profit per ton of steel fell 177 yuan to 172 yuan year on year. In addition, net cash flow from investment activities increased by 20900.37% year on year due to investment in Guangxi Iron and Steel Group. Q4 Earnings more than doubled, but the year-on-year decline continued for the whole year: the short-term bottoming out of steel inventories and the expansion of demand were the main reasons for the recovery in industry earnings in the fourth quarter of 2019. The short cycle of steel inventories bottomed out in October. Industrial chain sentiment was overregulated, and social inventories hit a five-year low. Combined with the significant expansion in demand after November, sentiment resonated with actual demand to push steel prices and tonnage profits back to a higher level. According to our estimates, rebar's gross profit in the fourth quarter rose to a high of around 900 yuan per ton of steel, and the quarterly average also exceeded 600 yuan, nearly doubling over the previous quarter. The company's profit fluctuated closely with industry fundamentals. Although the fourth quarter's performance improved sharply, the overall supply and demand relationship of the industry weakened during the year, compounded by a phased rise in mineral prices, the full-year performance still declined sharply year on year. Progress in increasing capital to Guangxi Steel: Liugang Group carried out equity restructuring of Guangxi Iron and Steel in February 2018 and obtained control of Guangxi Steel, and began to fully take over the follow-up construction of the Fangchenggang Steel Base project. In the future, according to the progress of the project, listed companies gradually participated in the construction of the project. Up to now, the construction of the Fangchenggang Steel Project has progressed in an orderly manner. The No. 1 blast furnace has been successfully ignited at the end of 2019, and the uncertainty of the subsequent construction of the project has been significantly reduced. Therefore, the company plans to increase the capital of Guangxi Steel Group Co., Ltd. by 5.156.5 billion yuan through a private agreement to increase capital, of which 5 billion yuan will increase the registered capital of Guangxi Steel, and the rest is included in the capital reserve. As of December 7, 2019, the registration of industrial and commercial changes related to the above matters has been completed. After the capital increase is completed, the company holds 27.78% of Guangxi Steel. The steel products of the Fangchenggang Steel Base mainly include high-strength rebar, alloy steel bars, high-quality wires, hot-rolled broadband steel, cold-rolled sheets, hot-dip galvanized coils and other steel used in construction, automobiles, machinery and other industries. After the Fangchenggang Steel Base project is completed and put into operation, it helps listed companies improve the existing product supply system, optimize product structure, and meet the diversified needs of customers. Investment suggestion: As a leading steel enterprise in Guangxi, the company's products are mainly bars and wires. Considering that the return of real estate investment may come early under the influence of the epidemic, the sharp decline in construction will greatly suppress steel demand at the leading end, and the company's profits will be put under pressure. We expect the company's 2020-2022 EPS to be 0.57 yuan, 0.62 yuan, and 0.66 yuan, giving it a “hold” rating. Risk warning: Demand is under pressure due to a sharp macroeconomic downturn; supply-side pressure continues to increase.