Key points of investment

Incident: The company disclosed its 2024 mid-year report, with increased revenue and a significant increase in profits. The company's revenue from January to June 2024 was 20.297 billion yuan, +17.09%; net profit to mother was 0.428 billion yuan, +100.38% year over year; net profit after deducting non-return to mother was 0.309 billion yuan, +55.86% year over year. The company's revenue grew, and profits increased dramatically.

In the first half of 2024, the company benefited from the release of production capacity in Yongjin in Guangdong and Yongjin in Zhejiang, an increase in the utilization rate of production capacity in Vietnam's Yongjin, and a significant increase in production and sales of major products. In the first half of 2024, the company completed warehousing production of 1.6458 million tons of cold-rolled products, an increase of 41.07% year on year; sales of 1.6045 million tons, an increase of 37.24% year on year. The main reason for the increase in production and sales of the company's products is that Guangdong Yongjin's “annual processing 0.35 million ton wide precision stainless steel strip technology transformation project” and Zhejiang Yongjin's “annual processing 0.195 million ton ultra-thin precision stainless steel strip project” released production capacity, while the capacity utilization rate of Vietnam's Yongjin further increased.

The economic recovery foundation is expected to be consolidated in the second half of 2024, providing a stable market demand environment for stainless steel. According to statistics from the 51 stainless steel website, in the first half of 2024, domestic stainless steel wide cold rolling production was 8.35 million tons, an increase of 1.49 million tons over the previous year, an increase of about 21.7%. The total production of wide plate crude steel in the first half of the year was 14.21 million tons, an increase of 1.12 million tons over the previous year, an increase of 8.56%, of which cold rolling accounted for 59%. By category, the 200 series produced 6.01 million tons, an increase of 0.26 million tons, or 4.56%; the 300 series produced 9.89 million tons, an increase of 0.88 million tons, or 9.76%; and the 400 series produced 3.51 million tons, an increase of 0.49 million tons, or 16.25%. According to website estimates, domestic apparent consumption from January to June 2024 was 16.69 million tons, an increase of 1.47 million tons over the previous year, or 9.6%. In the second half of the year, the foundation for economic recovery is expected to be consolidated, which will provide a stable market demand environment for the cold-rolled stainless steel industry. On the supply side, steel mill production schedules for the second half of the year will be adjusted more rationally based on factors such as orders and costs, which will help ease market pressure. However, the problem of overcapacity in the overall market still exists, which will put some pressure on market prices.

Profit forecast: Due to the rapid growth of the company's product sales in the first half of the year, gross margin and net margin also increased significantly compared to 2023, and the performance exceeded expectations, we raised the company's profit forecast. We predicted that the company's 24-26 revenue would be 45.607/47.888/50.224 billion yuan respectively, net profit to mother would be 7.43 /0.831/0.901 billion yuan, and PE was 8.50/7.60/7.01, respectively. Maintain a “buy” rating.

Risk warning: (1) The decline in the stainless steel market exceeded expectations; (2) the release of the company's stainless steel production capacity fell short of expectations; (3) the volume of the company's new business, such as battery cases and titanium alloys, fell short of expectations