Incident: The company recently released the 2024 semi-annual report forecast. Net profit attributable to mother was 105 million yuan to 115 million yuan in the first half of the year, +104.22% - 123.66%; net profit after deducting non-recurring profit and loss was 92.5 million yuan to 100.5 million yuan, +82.30% - 98.07% YoY.

Profitability increased quarterly. In the first quarter of 2024, the company achieved a gross margin of 19.6%, an increase of 4.2 PCT over the previous month; the net margin was 8.4%, an increase of 0.8 PCT over the previous month. The share of gross profit of stainless steel products continues to increase, and with the further release of production capacity in subsequent fund-raising projects, the company's profitability is expected to increase further in the second half of the year.

The coal power project approved in '23 exceeded 0.1 billion kilowatts, driving stable demand for boiler tubes. According to Green and Peace statistics, the total installed capacity of China's newly approved coal power projects in 2023 was 0.106 billion kilowatts, and the country added 47.74 million kilowatts of coal power in 2023. There is a big gap between the number of new coal and electricity installations in 2023, which is expected to support the continuation of the upstream raw material boiler tube boom for power plants.

The production line for the fund-raising project has been officially put into operation, and stainless steel sales have doubled year-on-year. The company's IPO fund-raising project added about 0.04 million tons of stainless steel and alloy steel production lines with a cumulative investment of 0.17 billion yuan, generating a profit of 0.047 billion yuan in 23 years. Shipments of 24H1 alloy steel products increased by 21.68% year on year, and shipments of stainless steel products increased by 81.06% year on year. In 2023, the company's super stainless steel orders and deliveries reached a record high. The total delivery volume of stainless steel was about 0.015 million tons, S30432 delivered about 0.01 million tons, and TP310hCBN delivered about 1,500 tons.

Considering that the pace of downstream construction is less than expected and the supply of upstream boiler pipes is tight or slowing down, we lowered the company's production and price assumptions, predicted that the company's earnings per share for 24-26 were 2.02, 2.14, and 2.36 yuan (originally 3.01 and 3.07 yuan for 24-25), and used DCF estimates to give the company a target price of 28.53 yuan to maintain the purchase rating.

Risk warning

The growth rate of the alloy steel and stainless steel business falls short of expectations, the risk of large fluctuations in raw material prices, the risk of concentration of sales customers, the risk of macroeconomic growth slowing down, and the risk that the coal and electricity market prosperity falls short of expectations.