Key points of investment:

occurrences

The company released its 2024 semi-annual report: in the first half of 2024, the company achieved operating income of 33.679 billion yuan, -8.78% YoY; realized net profit to mother of 1.233 billion yuan, +24.7% YoY. In Q2 2024, the company achieved operating income of 16.806 billion yuan, -0.39% month-on-month/-11.64% year over year; realized net profit of 0.679 billion yuan, +22.65% month-on-month.

Steady operation of the main steel industry, achieving lean production and cost reduction and efficiency 1) Volume: Overcoming the adverse effects of blast furnace maintenance, the company organized production and achieved steel production of 4.7872 million tons and 4.7828 million tons of sales in the first half of the year, -6.83% and -7.06%, respectively; of these, Q2 2024 achieved steel production of 2.4808 million tons, +7.56% /year over year, achieving steel sales volume of 2.5187 million tons, +11.24% /year over year -3.51%. 2) Price: Affected by factors such as downstream consumption falling short of expectations, the average sales price of Q2 alloy steel bars/alloy steel wire/ alloy steel strip/ medium and heavy plate/ construction thread without tax in 2024 was 4,373/4,541/3,717/5,060/3,289 yuan/ton, -2.62%/-5.26%/-3.94%/+5.46%/-4.41%, YoY -14.46%/-12.94%/-11.57%/-4.18%. 3) Benefits: The company focuses on reducing costs and improving quality and efficiency, optimizing the material structure to reduce iron and water costs, and focuses on reducing steel consumption, reducing alloy process costs, and increasing yield, etc., with remarkable cost reduction results. The gross profit of the company's steel business in Q2 2024 was 3.068 billion yuan, a year-on-year decrease of only 1.12%, and the gross margin was 14.21%.

Focus on advanced steel, optimize product structure, and increase overseas development 1) In the first half of 2024, the company's sales volume of advanced steel materials was 1.2978 million tons, up 0.18% year on year; gross profit margin was 17.94%, up 1.61 percentage points year on year; total gross profit of 1.334 billion yuan, up 1.44% year on year, accounting for 43.48% of the total gross profit of steel products, accounting for an increase of 1.10 percentage points year on year. 2) The company optimized its product structure to meet changes in the demand of the downstream application industry. Among them, marine, offshore, and machining steel accounted for 18.7% and 8.1%, respectively, an increase of 3.28 and 1.94 percentage points; infrastructure and real estate steel accounted for 13.6% and 2.8%, respectively, a decrease of 3.33 and 1.07 percentage points, respectively. 3) The company received export orders of 0.816 million tons of steel products, up 64% year on year, and 0.685 million tons, up 31% year on year, all of which set the best record in history.

Steel industry chain extension, diversified emerging industries strengthen ecology

The company extends the industrial chain around the main steel industry and proposes a “four yuan one chain” industrial layout. The diversified related industries are full of vitality, further strengthening Nangang Steel's intelligent transformation ecosystem. In the first half of 2024, Jin'an Mining achieved net profit of 0.265 billion yuan, Baizhong Environmental achieved net profit of 0.125 billion yuan, and Indonesia's Jinrui achieved net profit of 0.036 billion yuan. In terms of important projects, 1) Indonesia's Jinrui New Energy's 4 coke ovens have all been put into operation. Indonesia's Jinxiang New Energy 1 #、2 #、3 #焦炉均已投运，4 #焦炉正在烘炉中，其余焦炉及其配套设施正在按序推进施工。 2) Jin'an Mining independently developed and invested in the construction of a 0.05 million ton ultra-pure iron powder project has been launched.

Steady performance supports high dividends. The dividend cycle was changed to half a year. As the company achieved ultra-low emissions throughout the entire process, capital expenditure in the main steel industry is expected to shrink, supporting the company to pay a high percentage of dividends. The company reduced capital expenses in 2023, and the main steel industry added 2.444 billion yuan in fixed asset investment expenses, 68.27% of the completion plan. In 2022 to 2023, the company's dividend ratios reached 71.31% and 72.52% respectively, leading the industry, which is significantly higher than the industry average. The company plans to shorten the dividend cycle in 2024-2026 and change the dividend cycle from annual to half a year. The interim dividend amount is not less than 30% of the net profit attributable to shareholders of listed companies in the interim consolidated statements for that year. In the first half of 2024, the company plans to distribute a cash dividend of 0.10 yuan (tax included) to all shareholders, for a total of 616,509,101.10 yuan (tax included), accounting for 50% of the net profit attributable to shareholders of listed companies in the first half of the year.

Profit forecasting and investment advice

Affected by the industry's downstream demand falling short of expectations, the company's net profit to mother for 2024-2026 was reduced to 2.465/2.63/2.964 billion yuan respectively. The previous value was 2.468/2.718/3.12 billion yuan, and the corresponding EPS was 0.39/0.43/0.48 yuan/share. We believe that the company overcomes the adverse factors of the industry cycle, achieves lean production and cost reduction and efficiency, maintains steady operation of the main steel industry, and has resilient performance; established a leading edge in the field of special sheets and other fields, focusing on advanced steel to develop high-end products; at the same time, the company lays out new industries upstream and downstream around steel to explore performance growth potential and build a steel ecosystem; the superposition company focuses on returning shareholders, continuing to pay a high percentage of dividends and shortening the dividend cycle to half a year. The valuation level is expected to further improve and maintain the company's “buy” rating.

Risk warning

Steel prices fell short of expectations; product structure upgrades fell short of expectations; product exports fell short of expectations; product production fell short of expectations; Indonesian coke project fell short of expectations.