The company's 2020H1 realized operating income of 14.55 billion yuan and net profit of 823 million yuan, up 5.52% and 18.26% respectively over the same period last year. The company's earnings resilience exceeded expectations, maintaining the "overweight" rating.

Output growth, profit resilience significantly exceeded the industry average. In the first half of the year, the company produced 3.26 million tons of iron, 3.9 million tons of steel and 3.75 million tons of steel, an increase of 2.4%, 7% and 8.6% respectively over the same period last year. The company's sales gross profit margin of iron and steel products in the first half of the year was 12.32%, down only 0.43 percentage points from the same period last year, which was significantly less than the industry average. Among them, the company's plate gross profit margin was 12.26%, up 0.76% from the same period last year; bar gross profit margin was 15.15%, down 1.64% from the same period last year; and the gross profit margin of special steel and billet was 0.6%, up 6.22% from the same period last year.

We will reduce costs and increase efficiency, and the capital structure will continue to improve. The company continues to promote cost reduction and increase efficiency, with a cumulative cost reduction of 500 million yuan in the first half of the year. The company's three fees accounted for 3.67% of revenue, a slight increase of 0.44 percentage points over the same period last year, still maintaining a low level in the industry. The company's capital structure further improved, with the asset-liability ratio at the end of 2020H1 falling 4.27 percentage points year-on-year to 50.74 per cent, better than the industry average of around 60 per cent.

With the arrival of the steel season, the company's performance is expected to continue to pick up in the second half of the year. The overall supply of the industry this year is still very rigid, with crude steel production up 2.8% from January to July and pig iron production up 7.9% from the same period last year. The total inventory of steel is at a high level and the inventory of iron ore is at a low level over the years. The sharp rise in iron ore prices continues to erode steel profits. Since April, industry talent profits have gradually fallen to their lowest level since 2017 and are still hovering at the bottom. Some iron and steel enterprises in the industry are on the edge of break-even, under such circumstances, the output of the follow-up industry continues to lack momentum. With the arrival of the peak season demand for steel in the fourth quarter, the inventory structure of steel is expected to be optimized and profits are expected to bottom out.

Risk factors: raw material prices rose higher than expected; steel demand in peak season was lower than expected.

Investment suggestion: the company is a long-wood enterprise in Guangdong, with regional advantages and product structure advantages. The company's profitability resilience is better than expected this year, and we have raised our EPS forecast for 2020-22 from 0.65 to 0.67 to 0.68, 0.71 and 0.80 yuan. The company will be valued at 1.3 times PB in 2020, with a target price of 5 yuan and a "overweight" rating.