Description of the event: The company released its 2024 semi-annual report. With 2024H1, the company achieved revenue of 163.251 billion yuan, a year-on-year decrease of 4.1%; net profit to mother was 4.545 billion yuan, a year-on-year decrease of 0.2%; after deducting non-attributable net profit of 4.235 billion yuan, a year-on-year increase of 12.8%. With 2024Q2, the company achieved revenue of 82.437 billion yuan, a year-on-year decrease of 9.7% and a month-on-month increase of 2%; net profit to mother of 2.618 billion yuan, a year-on-year decrease of 3.3% and an increase of 35.9% month-on-month; net profit after deducting non-return to mother of 2.659 billion yuan, an increase of 28.6% year-on-year and 68.7% month-on-month increase.

Comment: Sales continued to increase, gross margin increased year-on-year

① Volume: Sales declined year over year. 2024H1, the company's steel sales volume was 25.51 million tons, down 0.2% year on year.

Among them, plate and strip sales increased 1.54% year on year, steel pipe sales decreased 5.21% year on year, and other steel sales decreased 17.53% year on year.

② Price: Gross margin increased year over year. 2024H1, the average price of the company's products was 4,702 yuan/ton, down 4.97% year on year. 2024H1, the company's gross margin was 5.73%, up 0.63 pct year on year, and 2024Q2, the company's gross margin was 6.32%, up 1.38 pct year on year, and 1.19 pct month on month.

Future core focus: Key projects continue to advance, product structure continuously optimized ① Product structure continued to be optimized. In 2023, we achieved sales volume of “1+1+N” products of 15.09 million tons, up 16.5% year on year; actively expanding overseas markets, receiving export orders totaling 3.035 million tons in the first half of the year, a record high for the same period. In the first half of the year, nine products, including silicon steel B23P080, were launched globally; in the first half of the year, sales of new test products were 3.268 million tons, exceeding the annual target schedule; and an industry breakthrough was achieved in the production ratio of various types of large scrap steel.

② Key projects continue to advance. 0.2 million tons/year non-oriented silicon steel product structure optimization at Baoshan base (three steps):

Construction is being prepared; Baoshan base 0.22 million tons/year ultra-high-grade silicon steel green manufacturing demonstration project: under construction; Qingshan base 0.22 million tons/year high-end oriented silicon steel green manufacturing structure optimization project: under construction; Dongshan base zero-carbon high-grade thin steel plate factory project: pile foundation and foundation construction in progress; Qingshan base 0.55 million tons/year new energy unoriented silicon steel structure optimization project, currently undergoing civil construction and steel structure construction; Baoshan base strip steel plant 0.62 million Structural optimization and transformation of the first rolled product in tons/year of small bars: The project has now been set up, and technical exchanges of equipment are being carried out; the Dongshan base thick plate variety expansion and transformation project (maximum product thickness increased to 160 mm) has now started.

③ Take a stake in Shandong Iron and Steel's Rizhao base to enhance enterprise competitiveness. On December 31, 2023, the company acquired 48.61% of the shares of Shandong Iron and Steel Group Rizhao Co., Ltd. for 10.703 billion yuan, which will help the company to better tap the potential for collaboration in the northern region and enhance its influence in the northern market.

Investment advice: As a leading enterprise in the steel industry, the company continues to grow in production and sales. At the same time, along with the gradual recovery of the domestic economy, we expect the company to achieve net profit of 9.979/11.181/13.89 billion yuan in 2024-26, respectively, corresponding to the closing price on August 28. PE is 13, 11, and 9 times, respectively, maintaining the “recommended” rating.

Risk warning: project progress falls short of expectations; risk of rising raw material prices; downstream demand falls short of expectations, etc.