Event: The company released its 2024 semi-annual report. With 2024H1, the company achieved revenue of 1.532 billion yuan, a year-on-year decrease of 16.2%; net profit to mother was 0.14 billion yuan, a year-on-year decrease of 24%; net profit after deducting non-return to mother was 0.132 billion yuan, a year-on-year decrease of 24.3%. With 2024Q2, the company achieved revenue of 0.802 billion yuan, a year-on-year decrease of 16.5% and a month-on-month increase of 9.8%; net profit to mother of 0.072 billion yuan, a year-on-year decrease of 35.5% and an increase of 5.7% month-on-month; net profit after deducting non-return to mother of 0.067 billion yuan, a year-on-year decrease of 37.4% and a 3.3% month-on-month increase.

Comment: Product sales declined year on year, and H1 gross margin increased year on year ① Volume: Product sales declined year on year. 2024H1, the sales volume of stainless seamless pipes in Wujin was 0.023 million tons, down 12.62% year on year, and 0.0163 million tons, down 2.11% year on year; in 24Q2, seamless pipe sales were 0.0114 million tons, down 20.37% year on year, down 2.31% month on month, and welded pipe sales were 0.0092 million tons, up 29.31% year on year, up 30.11% month on month.

② Price: H1 gross margin increased year over year. 2024H1, the price of seamless pipe was 48,507 yuan/ton, up 6.17% year on year, the price of welded pipe was 2,2593 yuan/ton, down 19.47% year on year. The company's gross margin was 16.60%, up 0.71 pct year on year, of which the gross margin of seamless pipe was 17.16%, up 0.74 pct year on year, and the gross margin of welded pipe was 15.69%, up 0.58 pct year on year; Q2, the price of seamless pipe was 50,606 yuan/ton, up 7.30% year on year, and the price of welded pipe was 21969 yuan/ton, year on year. It fell 26.79%, and the company's gross margin was 15.01%, a year-on-year decrease of 2.35 pcts, and a month-on-month decline of 3.34 pcts.

Future core highlights: Excellent product quality, high-end production capacity expansion ① The company has complete equipment capabilities. During the reporting period, the company purchased 1 new U-shaped pipe production line, 1 rotary solid solution production line for large diameter welded pipes, 2 sets of offline stainless steel pipe cleaning lines, 3 LG40 cold rolling pipe machines, 1 JZ100-16 roller steel pipe straightener, and 2 steel pipe 6 grinding head grinding machines, laying a solid hardware foundation for the company to expand the high-end market.

② Implement lean production to ensure excellent product quality. The company has passed system certifications such as ISO 9001, ISO14001, OHAS 18001 and SA 8000, and has passed the Norwegian Bureau of Shipping (DNV), Korea Bureau of Shipping (KR), American Bureau of Shipping (ABS), French Bureau of Shipping (BV), Italian Bureau of Shipping (RINA), China Classification Society (CCS), British Bureau of Shipping (LR), EU certification (PED), American Petroleum Institute (API) certification, and Norwegian Petroleum Standardization Organization (NORSOK M650) certification. During the reporting period, the company successfully passed the PED welded pipe certificate and the DNV-GL classification society certificate.

③ The company actively increases production and seizes market opportunities. The completion of the “High Performance Stainless Steel Seamless Pipe Project for High-end Equipment with an Annual Output of 0.02 Million Tons” will effectively expand high-end production capacity and enhance the company's profitability.

Profit forecast and investment advice: The company's high-end product sales volume is growing, and the industrial layout is optimized and upgraded. We expect the company's net profit to be 0.335/0.386/0.417 billion yuan in 2024-2026, corresponding to the closing price on August 27. PE is 9x, 8x, and 7x, maintaining the “recommended” rating.

Risk warning: Raw material prices fluctuate greatly, downstream demand falls short of expectations, and production capacity release falls short of expectations.