Q2 performance is in line with expectations and makes progress steadily.

The company's operating income has improved steadily. In 2022 and the first half of 2023, the company achieved revenue of 2.762 billion yuan and 1.409 billion yuan respectively, up 5.70% and 1.69% respectively over the same period last year, and net profit of 390 million yuan and 170 million yuan respectively, up 80.75% and 13.93% respectively over the same period last year. Non-homed net profit was 337 million yuan and 138 million yuan respectively, an increase of 94.58% and a decrease of 15.68%.

2023Q2, the company achieved operating income of 802 million yuan, an increase of 8.65% over the same period last year, an increase of 32.30% over the same period last year; net profit from the home was 114 million yuan, down 16.36% from the same period last year, up 103.18% from the previous year; and the net profit from non-return was 94 million yuan, down 20.88% from the same period last year and 112.48% from the previous year.

Tetramanganese bibcock, benefiting from lithium ferromanganese phosphate and sodium explosion

The company has the first output of manganese tetroxide in the world. Among them, the market share of domestic products of electronic grade manganese tetroxide is in the forefront of the country, and the import substitution rate has increased year by year, which has exceeded 50% at present. The company has a production capacity of 65000 tons of manganese tetroxide (15000 tons of battery grade and 50,000 tons of electronic grade). The company plans to continue to expand the production of electronic grade manganese materials, which is expected to be put into production in the third quarter. Among them, battery-grade products will benefit from the outbreak of demand for lithium ferromanganese phosphate and sodium battery cathode materials.

The product matrix of magnetic materials is rich, benefiting from the strong demand downstream

Benefiting from the rapid development of downstream areas such as photovoltaic, new energy and 5G applications, the demand for soft magnetic, permanent magnet, metal soft magnetic powder cores and other products is increasing, and the production capacity is expected to be released with the demand.

Up to now, the company's new production capacity of magnetic materials: through the reconstruction and expansion of the fourth quarter metal magnetic core, powder production capacity can reach 5000 tons, 8000 tons.

One of the authoritative inspection and testing institutions in the field of major infrastructure construction in China.

1) China's inspection and testing market will show a momentum of rapid development, with a compound growth rate of 11.0% in the next five years. In 2026, the market size is expected to exceed 700 billion yuan, of which the market size in the field of infrastructure testing is estimated to be about 150 billion yuan. 2) the Sinosteel national inspection company is a domestic infrastructure testing giant, with a high growth rate of about 34.3% of CAGR in 2017-2022, strong profitability and a high gross profit margin of nearly 60%. 3) continue to march into other detection fields, and achieve endogenous + epitaxial growth through continuous cross-domain and cross-regional expansion in the future.

Baowu reorganization is expected to bring industrial synergy advantages

Baowu Group, as a high-tech enterprise providing integrated solutions for iron and steel and advanced materials and industrial ecosystem services, is expected to give the company more industrial resources to support and accelerate the development of the company in the future. 1) Baowu Group is the largest iron and steel enterprise in the world and is expected to provide the company with high quality iron red. 2) Baowu's new materials business plate can cross with the company's magnetic materials in many fields, and can give full play to industrial synergy, which are related in technology, production process, client, etc., and can give full play to industrial synergy to achieve win-win results.

Profit forecast and valuation

The company is expected to achieve an operating income of 32.43, 39.78 and 4.638 billion yuan (down from 23 to 25e) in 2025, an increase of 17.39 percent respectively over the same period last year. 68% 16.60%; the net profit of returning to the mother was RMB 397 million (down from 23 to 25e), an increase of 1.79%, 36.97% and 22.96% respectively over the same period last year, and the corresponding EPS was RMB 0.52, 0.72 and 0.88 respectively. Maintain a "buy" rating.

Risk Tips:

The risk of upstream raw material price fluctuation; the construction of production expansion project is not as expected; the downstream demand is not as expected.