Summary of events: the company released its semi-annual report of 2023: 2023H1, the company achieved revenue of 1.828 billion yuan, an increase of 44.2% over the same period last year; net profit of 184 million yuan, up 123.3% over the same period last year; and 174 million yuan of non-return net profit, an increase of 209.8% over the same period last year. 2023Q2, the company achieved revenue of 960 million yuan, an increase of 36.9% over the same period last year, an increase of 10.6% over the same period last year; net profit from the home was 111 million yuan, up 122.3% from the same period last year and 53.4% from the previous year; and the net profit from non-return was 107 million yuan, an increase of 130.3% over the same period last year and 59.9% from the previous year.

Comments: price sales are both growing, gross profit level continues to improve ① volume: 2023H1 production and sales increased year-on-year. During the 2023H1 period, the company produced 28300 tons of seamless pipe, up 23.39 percent over the same period last year, 17900 tons of welded pipe, up 35.29 percent, 26300 tons of seamless pipe, up 19.77 percent over the same period last year, and 16600 tons of welded pipe, up 23.19 percent.

Price: the price of the product is increased and the company's gross profit margin is improved. 2023H1, the average price of seamless pipe increased by 19.98% compared with the same period last year, and the price of welded pipe increased by 4.34% compared with the same period last year, and the company increased sales of high-end products such as thermal power boiler tubes, strengthened cost control, and realized the growth of both business income and net profit. 2023H1 raised its gross profit margin by 3.07pct to 15.89%. On a quarter-to-quarter basis, 2023Q2 gross profit margin rose 3.11pct from a month earlier and 3.30pct to 17.36 per cent year-on-year.

Future core focus: thermal power demand is obvious, high-end tube leader profit growth ① thermal power boiler tube bidding for continuous volume, super stainless steel pipe supply and demand is tight. In September 2022, the National Development and Reform Commission held a meeting on coal supply, which proposed that about 8000 kilowatts (equivalent to 80GW) were approved annually from 2022 to 2023, which would bring 200 million kilowatts of new installed capacity in the next three years, and the upgrading of old coal-fired power units would further boost the demand for super stainless steel seamless tubes. However, because of the high supply barriers between S30432 and HR3C, it is difficult for new manufacturers to quickly cut into the supply system of boiler plants, and the supply elasticity is limited, which is expected to support the price of thermal power boiler tubes.

② is actively increasing production and seizing the opportunity of market recovery. The company is one of the leading enterprises in the domestic stainless steel pipe industry, with an original thermal power boiler tube production capacity of 10,000 tons. The company's 20, 000-ton high-end stainless steel pipe project has been put into production, and the thermal power boiler tube production capacity can reach 30, 000 tons.

③ ethylene cracking furnace tube localization trend, precision tube industry leading position consolidated. The company has jointly established a project with a domestic petrochemical giant to realize the localization of the convection section tube of ethylene cracking furnace in 2023. The company continues to forge ahead after the production of 3500 tons of precision pipe production line, which will build a moat for the company's high profitability and create a leading position in the industry.

Investment advice: benefiting from the expansion of demand in the thermal power boiler tube industry and the continued release of new production capacity, we expect the company to achieve a net profit of RMB 4.01 billion in 2023-25, respectively. Corresponding to the closing price on August 22, PE is 11 times, 7 times and 7 times respectively, maintaining the "recommended" rating.

Risk tips: project schedule is not as expected risk; raw material price rise risk; downstream demand is not as expected.