Event: The company publishes its 2024 semi-annual report. The company achieved operating income of 1.316 billion yuan in the first half of the year, up 83.43% year on year; net profit to mother was 0.123 billion yuan, up 139.61% year on year; after deducting non-net profit of 0.119 billion yuan, up 134.29% year on year, with basic earnings per share of 1.12 yuan.
Second-quarter results surged, and net interest rates increased quarter by quarter. The company achieved net profit of 0.073 billion yuan in the second quarter of 2024, up 134.55% year on year and 47.46% month on month; realized net profit without return to mother of 0.071 billion yuan, up 126.61% year on year and 47.65% month on month; the company's gross sales margins from 2023Q3 to 2024Q2 were 10.75%, 15.43%, 19.58%, and 16.08%, respectively. Net sales margins were 4.04%, 7.27%, 8.81%, and 9.64%, respectively. Since 2023Q3, the company's net sales interest rate has increased quarterly, benefiting from strong downstream thermal power construction demand, and the trend of high performance growth is expected to continue.
New production capacity continues to be released, and shipments of high-end products have increased significantly. According to the company's announcement, the company's newly built 0.04 million-ton stainless steel production line was completed and put into operation in May 2023, with an overall planned production capacity of 0.16 million tons, ranking first in the country in terms of production capacity of small-caliber stainless seamless steel pipes for ultra-supercritical boilers; in 2023, the company's sales volume of metal products was 0.1,389 million tons, an increase of 34.97% over the same period last year, with a total stainless steel delivery volume of about 15,000 tons; in the first half of 2024, shipments of alloy steel products increased by about 21.68% over the same period. Product shipments increased by about 81.06% over the same period; in the first half of the year, the gross margin of alloy steel products was 11.31%, down 0.44pct year on year, and the gross margin of stainless steel products was 28.24%, up 5.44% year on year. Shipments of high-end products increased significantly, and the profitability of the company's main business continued to increase.
Lay out high-end products and auto parts to explore new profit growth points. According to the company's announcement, the company and the Xi'an Thermal Engineering Institute have jointly developed a novel nickel-iron-based HT700 superalloy product for 700℃ advanced ultra-supercritical (A-USC) superheaters, mainly used in 700℃ advanced ultra-supercritical (A-USC) coal-fired generators; the manganese-nitrogen austenitic alloy material jointly developed by the company and partners has entered the small-batch production stage. According to the company's announcement, in August 2023, the company purchased 51% of Jiangsu Ruimei Auto Parts Co., Ltd.'s shares with 280.5 million yuan in cash and established a wholly-owned subsidiary Jiangxi Shengde Ruiheng Lightweight Manufacturing Co., Ltd. in May 2024 (the main business is auto parts and accessories manufacturing). Currently, the company has formed two major business segments: traditional energy equipment parts and new energy vehicle parts, and the company's profitability and resilience to risks are expected to increase further.
Investment advice. The company focuses on manufacturing seamless steel pipes for small-caliber energy. While production capacity is expanding, downstream demand continues to improve and effectively support its profit release, and the increase in the share of high-end products is expected to support its higher valuation. According to the latest stainless steel pipe gross margin situation, we have adjusted the profit estimate appropriately. The company is expected to achieve net profit of 0.243 billion yuan, 0.289 billion yuan, and 0.328 billion yuan respectively from 2024 to 2026. The corresponding PE is 10.4, 8.8, and 7.7 times, maintaining a “buy” rating.
Risk warning: Prices of upstream raw materials have risen sharply, demand for steel falls short of expectations, and there is uncertainty about the development of new businesses.