Description of the event

First half of the year: The total number of new orders signed was 14.356 billion yuan, a year-on-year decrease of 4.66%, and an output of 2.1058 million tons, an increase of 0.1% over the previous year. Second quarter: The total number of new orders signed was 7.391 billion yuan, a year-on-year decrease of 5.87%, and an output of 1.188 million tons, an increase of 0.1% over the previous year.

Incident comments

The total number of orders declined in the second quarter. Judging from the decline in prices, the number of orders in the single quarter still increased year-on-year. Total orders reached 7.391 billion yuan in the second quarter, a year-on-year decrease of 5.87%. Among them, looking at a single order sample of 0.01 million tons or a single order of 0.1 billion yuan, the total amount was 1.7 billion yuan, an increase of 18.47% over the previous year, and the total processing volume was 0.32 million tons, an increase of 37.3% over the previous year, indicating a further increase in the proportion of large orders. The average sample order price was 5,289 yuan/ton, down from 5777 in Q1 and 6130 in the same period last year, mainly affected by the month-on-month decline in steel prices. According to the average price estimate of sample orders, the amount corresponding to the company's total order amount of 7.39 billion yuan in the second quarter corresponds to a total order volume of 1.4 million tons, an increase of about 9% over the previous year.

Production remained flat in the second quarter, affected by current demand, last year's base, and welding robots. The company's production in the second quarter was 1.188 million tons, up 0.1% year over year. The company's output failed to grow rapidly. On the one hand, overall manufacturing demand was under pressure in the second quarter. After the manufacturing PMI reached 50.4% in April, it was only 49.5% in May and June, and the industry's physical workload was also weak. Combined with last year's high order and output release period after the Spring Festival, which made output relatively weak. On the other hand, further implementation and commissioning of the company's welding robots may occupy a certain amount of production lines, which has also had a certain impact on production.

Looking ahead to Q2 results, it is expected that tonnes of profit will increase month-on-month and be under year-over-year pressure. Looking ahead to the second quarter, considering seasonal factors, etc., non-net profit in the second quarter is expected to increase significantly compared to Q1, but considering that last year's Q2 was the last quarter not affected by high R&D, the non-net profit base is high, so it is expected that the year-on-year decline may occur. Furthermore, considering the confirmation of a single large amount of government subsidy in Q1, which led to an unrecurrent profit and loss of close to 0.12 billion in Q1, government subsidies are expected to decline sequentially in the second quarter. Taken together, considering that production remained flat year on year, with a month-on-month increase and year-on-year decline in profit, deducting non-net profit or a double-digit year-on-year decline in the second quarter, attributable net profit performance may be better than deducting non-net profit.

Q3 is expected to be an inflection point in business, and the bottom value allocation is recommended at this point. Recently, with market fluctuations and adjustments, compounded by the decline in PMI and the decline in steel prices in May and June, the company's stock price returned to a low level. In the short term, it is expected that in the context of last year's Q2 high sales base+no high R&D expenditure, this year's Q2 will be the last stress testing period. Q3 may improve significantly year over year, and operations are expected to reach an inflection point; in the medium term, the company's competitive advantage is stable. As R&D gradually stabilizes, profitability is expected to continue to rise, and future performance flexibility can be expected. Continuing to be optimistic about the high increase in production and sales due to the company's increased market share, and the further advancement of cost reduction in the context of increased automation, the continuous improvement in gross profit per ton shows positive factors. Optimistic about the company's core competitiveness and long-term growth, the company is expected to achieve net profit of 1.277, 1.471, and 1.727 billion yuan in 2024-2026, corresponding to the current closing price PE of 8.66, 7.53, and 6.41 times, respectively, to maintain a “buy” rating.

Risk warning

1. Downstream demand fluctuation risk;

2. Risk of fluctuations in raw steel prices.