24H1 net profit to mother was -3.80% year-on-year, and 24H1 achieved revenue of 56.684 billion yuan (yoy -1.19%) and net profit to mother of 0.395 billion yuan (yoy -3.80%), of which 24Q2 net profit to mother 0.419 billion yuan (yoy -10.61%, reverse loss from month to month).

We maintain our profit forecast. We expect the company's EPS to be 0.10/0.12/0.15 yuan, respectively, and the BVPS to be 6.42/6.51/6.64 yuan respectively. Comparable to the average PB (2024E) value of 0.49 times, the company will be given a 24-year PB valuation of 0.49 times. According to the 24-year BVPS of 6.42 yuan, corresponding to a target price of 3.15 yuan (previous value of 4.04 yuan), we will maintain the “gain” rating.

The low efficiency situation in the industry continues. The gross profit margin of 24H1's main business is 1.43pct year on year. According to the company report, 24H1's main business gross profit margin is 3.74% (yoy-1.43pct), of which steel billet gross margin 1.36% (yoy-0.66pct), hot rolled gross profit margin 2.89% (yoy-2.43pct), and cold rolled product profit margin 4.53% (yoy+0.10pct). The period cost ratio was 2.78% (yoy-0.11pct), of which the R&D expense ratio was 0.52% (yoy+0.18pct) and the financial expense ratio was 1.06% (yoy-0.28pct). The company's interest-bearing liabilities were reduced, and interest expenses were reduced. In addition, 24H1's other revenue was about 0.731 billion yuan, an increase of 0.702 billion yuan over the previous year, mainly due to VAT input plus deductions, mainly because the company enjoyed preferential tax policies for advanced manufacturing enterprises. Overall, 24H1's net sales margin was 0.75% (yoy-0.07pct).

The output of the three strategic products increased steadily, and the product structure continued to be optimized. According to the company's report, the company's 24H1 billet and steel sales volume was 11.035 million tons (yoy +2.06%), and the product structure was continuously improved. The electrical steel output was 0.9474 million tons (yoy +11.7%), of which high-grade non-oriented electrical steel produced 0.1621 million tons (yoy +3%); automobile board production 2.1682 million tons (yoy +11.37%), high-end galvanized, high-strength, and outer panel products increased 26%, 13%, and 26% year-on-year respectively; tin (chrome) plate production was 0.3386 million tons (yoy +2.70%). Overall, the company is profit-oriented, combines changes in demand, and dynamically optimizes the product structure. Strategy and key products account for 75% of the output (yoy+9pct).

Energy efficiency standards for transformers have been revised, and demand for high-magnetic-oriented silicon steel is expected to continue to grow. The mandatory national standard “Power Transformer Energy Efficiency Limits and Energy Efficiency Levels (GB 20052-2020)” was officially implemented on June 1, 2021, but it only applies to transformers on the transmission and distribution side. The revised “Implementation Rules for Power Transformers Energy Efficiency Labeling (GB 20052-2024)” was released on April 29, 2024, and will be implemented on February 1, 2025. The new standard has added energy efficiency class tables for photovoltaics, wind power, and energy storage transformers on the new energy generation side. In the context of dual carbon, demand for UHV transformers and energy-efficient configurations continues to increase, and demand for high-magnetic-oriented silicon steel is expected to continue to grow.

Risk warning: Downstream demand falls short of expectations, raw material prices fluctuate greatly, steel industry policy changes.