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 75.95 billion yuan, a year-on-year decrease of 4.53%, and realized net profit of 1.331 billion yuan, a year-on-year decrease of 48.16%, and realized net profit of 1.163 billion yuan, a year-on-year decrease of 53.26%. Looking at a single quarter, 24Q2 achieved net profit to mother of 0.94 billion yuan, a year-on-year decrease of 50%, but an increase of 140.04% over 24Q1's 0.392 billion yuan.

Steel sales declined slightly, and gross profit per ton of steel showed some resilience. In the first half of 2024, the company achieved steel sales volume of 12.69 million tons, a year-on-year decrease of 6%; the price of a ton of steel was about 4,010 yuan/ton, a year-on-year decrease of about 3.3%; the cost of a ton of steel was about 4,055 yuan/ton, an increase of 0.5%; and the gross profit of a ton of steel was about 355 yuan/ton, a year-on-year decrease of 32.3%. Overall, during the reporting period, the company's sales volume declined somewhat, but overall gross profit per ton of steel remained stable, showing strong resilience as industry sentiment continued to decline.

Financial expenses and R&D expenses increased year-on-year, resulting in year-on-year increases in expenses during the period. During the reporting period, the company's total expenses for the period were 4.273 billion yuan, an increase of 7.71% over the previous year. Among them, management expenses were 0.817 billion yuan, a year-on-year decrease of 2.16%; sales expenses were 0.212 billion yuan, a year-on-year decrease of 1.95%; financial expenses were 0.101 billion yuan, an increase of 0.098 billion yuan, mainly due to the year-on-year decrease in the company's exchange earnings; in addition, R&D expenses were 3.142 billion yuan, up 7.89% year on year, maintaining a high overall level.

Accelerate overseas market expansion, achieve import substitution in multiple steel types, and continue to advance high-end transformation. According to the company's announcement, in the first half of 2024, the company completed export sales of 0.8567 million tons of steel, all of which were high-value-added varieties. Among them, the second quarter completed steel export sales of 0.5328 million tons, achieving a year-on-year increase of 37.57% and a month-on-month increase of 64.49% in a single quarter. At the same time, in the domestic market, the company has also successfully developed many new steel varieties, such as hydrogen-mixed hydrogen pipeline steel, to replace imports of 11 types of steel from domestic production.

In the first half of 2024, the company achieved sales volume of 8.21 million tons of high-end key steel, increasing its share of total sales to 64.6%, an increase of 1.2 percentage points over 2023.

Investment analysis opinion: Affected by the macroeconomic downturn since the beginning of 2024, competition in the superimposed plate sector has intensified, and steel prices have declined to a certain extent year-on-year. We lowered the 2024-2026 net profit forecast to 3.309/3.698/4.183 billion yuan (the original forecast was 5.479/5.926/6.464 billion yuan), corresponding to 2024-2026 PE 8 times, 7 times, and 7 times, respectively. Comparable companies refer to Baosteel Co., Ltd. and Nangang Steel Co., Ltd., which have the same product structure. The average PE in 24-26 was 11 times, 10 times, and 9 times, respectively, so the company's valuation level is low; moreover, as the company continues to optimize its product structure, it is expected that the proportion of high-profitability varieties of steel will continue to rise, and profit levels are expected to rise steadily, so it maintains a “buy” rating.

Risk warning: Prices of raw materials rose more than expected; demand for steel used in manufacturing fell short of expectations.