On August 19, Cailian Press (Reporter Zhang Liangde) reported that although the entire steel industry has faced increased operating pressure due to weakened market demand, high raw material prices, intensified international trade frictions, and other factors, leading to a overall decline in performance, Nanjing Iron & Steel (600282.SH) has seen its performance grow in the first half of this year. This is the company's first "mid-term performance report" since CITIC Group became its actual controller.

Nanjing Iron & Steel announced tonight that the company's revenue in the first half of this year was 33.679 billion yuan, a year-on-year decrease of 8.78%; the net profit attributable to the shareholders of the listed company was 1.233 billion yuan, a year-on-year increase of 24.70%. In the second quarter, the net profit attributable to the shareholders of the listed company was 679 million yuan, a quarter-on-quarter increase of 22.56%. In addition, the company plans to distribute a cash dividend of 1 yuan per 10 shares in the first half of the year, totaling 617 million yuan.

There are many factors contributing to the company's profit growth. In addition to maintaining a high level of profitability in its steel main business, other income has also increased significantly. In addition, management expenses and financial expenses have both decreased compared to the same period last year.

As a leading full-process steel joint venture in China, Nanjing Iron & Steel's medium and heavy plate and special steel long products have strong market competitiveness. The products are widely used in the fields of oil and gas equipment, new energy, ships and marine engineering, automotive bearings and springs, construction machinery and rail transit, bridges and high-rise structures, with a large proportion of high-end manufacturing customers. This has enabled Nanjing Iron & Steel to be less impacted by the continued decline in real estate sales and the sharp reduction in demand for building steel.

Although Nanjing Iron & Steel's revenue declined in the first half of this year, the main reasons were the decline in steel prices and sales volume, as well as the exclusion of Zhejiang Wansheng (603010.SH) from its consolidated statements this year.

After the "streamlining" process, Nanjing Iron & Steel performed better in some financial data compared to the same period last year. In the first half of the year, the company's gross profit margin was 11.15%, a slight increase from 10.55% in the same period last year, and its net profit margin also increased from 2.98% in the same period last year to 3.66%. The company's management expenses decreased from 0.84 billion yuan last year to 0.668 billion yuan, and employee compensation also decreased.

In the context of the steel industry facing blocked points such as weak social expectations, insufficient effective demand, structural overcapacity, and the prices of raw materials such as iron ore, coking coal, and coke having a higher price elasticity than that of steel, the profitability of steel companies has sharply declined, and industry competition has increasingly intensified. In this environment, the market has higher requirements for steel companies' operating strategies, product structures, and cost control.

One of the reasons for the company's products maintaining a high gross profit margin is that the company's high-end products have strong anti-cyclical fluctuation capabilities. In the first half of this year, the sales volume of the company's advanced steel materials was 1.2978 million tons, accounting for 27.14% of the total steel product sales volume, an increase of 1.96 percentage points compared to the same period last year; the gross profit margin was 17.94%, an increase of 1.61 percentage points compared to the same period last year. In addition, the company focuses on various steel-related industries, and some subsidiaries have performed well. In the first half of 2024, Jin'an Mining achieved a total profit of 0.36 billion yuan, and Baizhong Environmental achieved a total profit of 0.153 billion yuan. At the same time, the company further optimized its raw material structure, significantly reduced the cost of molten iron, improved the stability of its quality, reduced the consumption of steelmaking materials, reduced costs through alloy technology, and increased the yield rate. During the reporting period, the company's costs for the M process decreased by 1.094 billion yuan compared to the same period last year.

In addition, national financial and tax policies to support high-tech enterprises are also factors contributing to the company's profit growth. In the first half of the year, the company's other income was 0.311 billion yuan, a year-on-year increase of more than double. This part of the income mainly comes from the VAT credit offset of advanced manufacturing enterprises. In September last year, the Ministry of Finance issued an announcement on the VAT credit offset policy for advanced manufacturing enterprises, allowing advanced manufacturing enterprises to deduct 5% of the current deductible input tax amount to offset the payable VAT amount.

On the other hand, in the rapidly changing international political and economic situation, the company's import and export business and the income of overseas subsidiaries are both facing significant exchange rate fluctuations risks.

In the first half of the year, the company's steel product export order volume was 0.816 million tons, a year-on-year increase of 64%, and the export volume was 0.685 million tons, a year-on-year increase of 31%, both reaching record highs. While obtaining higher product gross margins, there was also some exchange rate risk. In the second quarter of this year, the overall exchange rate of RMB to USD rose. However, with the basic stability of RMB, the larger exchange rate risk mainly comes from the income fluctuations of the company's overseas investment, as exchange rate fluctuations of some countries are significant. The company is building an overseas coking production base in Indonesia's Qing Shan Industrial Park, and has established joint ventures, Indonesia Jinrui New Energy, Indonesia Jinxiang New Energy. The company has built a total of 6.5 million tons of coking projects per year. Due to the depreciation of the Indonesian Rupiah against the US dollar, the company's overseas exchange losses were reduced from CNY 0.21 billion in the same period last year to CNY -56.45 million in the first half of this year.

Overall, since the change of the actual controller to CITIC Group at the end of last year, the company has delivered the first positive growth "mid-term report". The company has not experienced situations where the core competitiveness is seriously affected due to the departure of the core management team or key technical personnel, equipment or technology upgrades, or the loss of franchising rights.