Key points of investment:

The company released its 2024 semi-annual report, and the performance was in line with market expectations. In the first half of 2024, the company achieved revenue of 163.251 billion yuan, a year-on-year decrease of 4.1%, and net profit to mother of 4.545 billion yuan, a year-on-year decrease of 0.17%; in 24Q2, the company achieved net profit of 2.618 billion yuan, a year-on-year decrease of 3.29% and a year-on-year increase of 35.93%.

Cost reduction achieved certain results, and gross profit per ton of steel increased year on year. In the first half of 2024, the company achieved steel production of 25.62 million tons, up 0.1% year on year; achieved sales volume of 25.51 million tons, down 0.2% year on year; the price of a ton of steel was about 4,702 yuan/ton, down about 5% year on year; ton steel cost was about 4,529 yuan/ton, down 5.6% year on year; gross profit of ton steel was about 173 yuan/ton, up 15.5% year on year.

Overall, during the reporting period, the company's production was basically stable, production and sales remained balanced, and at the same time achieved certain results in reducing costs, which ultimately achieved a year-on-year increase in gross profit per ton.

Expenses declined slightly year-on-year during the period, and R&D investment remained at a high level. During the reporting period, the company's total expenses for the period were 4.742 billion yuan, a year-on-year decrease of 0.47%. Among them, management expenses were 17.1.867 billion yuan, a year-on-year decrease of 16.74%, mainly due to the impact of dismissal benefits accruing performance pay; sales expenses of 0.794 billion yuan, a year-on-year decrease of 8.03%; financial expenses of 0.674 billion yuan, up 78.82% year on year, mainly due to an increase in exchange losses of 0.34 billion yuan. The median price of US dollar against RMB in the first half of the year deviated greatly from the immediate market price, thus increasing the loss of spot foreign exchange purchases; in addition, R&D expenses were 1.556 billion yuan, up 6.49% year over year, maintaining a high overall level.

Superior products create differentiated competitiveness, and export business expands overseas markets. According to the company's announcement, in the first half of 2024, the company's “1+1+N” high-profit products sold about 15.09 million tons, up 16.5% year on year. At the same time, in terms of exports, the company received a total of 3.035 million tons of export orders in the first half of the year, a record high for the same period.

Continuing the high level of dividends, the 2024H1 dividend rate is expected to be around 52.13%. According to the company's announcement, in the first half of 2024, the company plans to distribute a cash dividend of 0.11 yuan/share (tax included, same below), with an estimated total dividend of 2.369 billion yuan, accounting for 52.13% of the net profit attributable to shareholders of the parent company in the consolidated statement, continuing the high level of dividends.

Investment analysis: Affected by sluggish downstream demand, steel prices have continued to fall recently. We lowered the company's net profit forecast for 2024-2026 to 11.122/12.223/13.401 billion yuan (the original forecast was 13.347/15.245/15.525 billion yuan, respectively), corresponding to 24-26 PE of 12 times, 11 times, and 10 times, respectively. The company's products are mainly plate, and downstream automobiles account for a relatively high proportion. Therefore, the comparable company refers to Nangang Steel Co., Ltd., which also mainly use plates, and CITIC Special Steel, which also has a relatively high proportion of steel used in the downstream automotive sector. Currently, the average PE of the comparable company in 24 years is about 15 times, which is higher than the company's PE 12 times in 24 years, so it maintains a “buy” rating.

Risk warning: Downstream demand falls short of expectations, steel prices are lower than expected; iron ore and coking coal prices are higher than expected, and high costs affect the company's profit level.