Event: The company publishes its 2024 semi-annual report. The company achieved operating income of 163.251 billion yuan in the first half of the year, down 3.89% year on year; net profit attributable to shareholders of listed companies was 4.545 billion yuan, down 0.17% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 4.235 billion yuan, up 12.84% year on year; and basic earnings per share were 0.21 yuan.

Non-net profit deductions have improved, and profit resilience has been highlighted. The company achieved net profit of 2.618 billion yuan in the second quarter of 2024, down 3.29% year on year and 35.93% month on month, achieving net profit without return to mother of 2.659 billion yuan, up 28.55% year on year and 68.72% month on month; total profit of the ferrous metal smelting and rolling processing industry fell sharply in the first half of 2024. China Steel Association statistics showed that key companies lost nearly 50%. The company's gross sales margin was remarkable compared to industry profits; the company's gross sales margin for 2023Q3 to 2024Q2 was 8.29%, 6.32%, 5.13%, and 6.32%. Net sales margins were 5.21%, 4.55%, 2.83%, and 3.58%, respectively. The company's gross sales margin and net margin improved simultaneously in the second quarter of 2024.

Exports and sales of high-end products increased, and Saudi Thick Plate Company's investment increased. According to the company's announcement, the company's production in the first half of 2024 was 25.62 million tons, up 0.1% year on year, sales volume was 25.51 million tons, down 0.2% year on year; export orders in 2024 totaled 3.035 million tons, a record high for the same period. “1+1+N” products sold 15.09 million tons, an increase of 16.5% over the same period last year. Nine products including silicon steel B23P080 were launched globally in the first half of the year. Million tons, exceeding the annual target; the company's cost reduction efforts increased, exceeding the target schedule by 4.55 billion yuan in the first half of 2024, which strongly supported the company's operating performance; the company further adjusted the plan to jointly invest with Saudi Arabian National Petroleum Company and the Saudi Public Investment Fund to establish the Saudi Thick Plate Company. The company's investment amount was adjusted from about 3 billion yuan to about 7.23 billion yuan, and the internationalization strategy was further deepened; as the company further deepened the optimal division of labor and resource allocation of production lines, Continuously optimizing the product structure, the profitability of the main business is expected to increase.

The gross margin of hot rolled coils and long materials improved, and the dividend ratio remained high. According to the announcement, the gross margin of cold-rolled carbon steel sheets decreased by 1.2 pct to 4.9% year on year in the first half of 2024, gross margin of steel pipe products decreased by 0.2 pct to 4.1% year on year, gross margin of hot-rolled carbon steel coil products increased 4.0 pct to 3.4% year on year, gross margin of long wood products increased 4.9 pct to -1.0% year on year, and the total gross margin increased 0.7 pct to 3.7% year on year; in the first half of 2024, the company plans to distribute a dividend of 0.11 yuan/share (tax included) belonging to the parent company's shareholders in the first half of the consolidated statement 52.13% of profit. As the company's ultra-low emissions transformation is completed, subsequent capital expenditure is expected to decline, and the dividend ratio may remain high.

Investment advice. The company is an industry leader, focusing on high-end special plate manufacturing, benefiting from mergers and restructuring attributes, high-end product structure, and significant cost reduction space, and its profitability is expected to improve. Considering the pressure on industry profits due to weak demand for steel during the year, we adjusted the profit estimates appropriately. The company's net profit from 2024 to 2026 is estimated to be 10.37 billion, 11.37 billion, and 12.36 billion yuan. Referring to the company's valuation changes over the past three years, we believe there is clear room for repair in the past three years. The central region corresponds to a market value of about 208.5 billion, and the high-valuation region corresponds to a market value of about 303.1 billion, 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.