Event Overview: The company publishes its 2024 semi-annual report. With 2024H1, the company achieved revenue of 75.95 billion yuan, a year-on-year decrease of 4.5%; net profit to mother was 1.331 billion yuan, a year-on-year decrease of 48.2%; net profit not attributable to mother was 1.163 billion yuan, a year-on-year decrease of 53.3%. With 2024Q2, the company achieved revenue of 38.902 billion yuan, a year-on-year decrease of 1.9% and a month-on-month increase of 5%; net profit to mother of 0.94 billion yuan, a decrease of 50% year-on-year and an increase of 140% month-on-month; net profit of 0.84 billion yuan after deducting non-return to mother of 0.84 billion yuan, a year-on-year decrease of 54.4% and a month-on-month increase of 160.6%.

Comment: Sales volume and gross margin declined year on year

① Volume: The company's sales volume declined year-on-year. 2024H1, Valin Steel's sales volume was 12.71 million tons, down about 5.7% year on year, of which high-end grade steel sales were 8.21 million tons, accounting for an increase of 1.2 pct to 64.6%; the company's steel export sales volume was 0.8567 million tons, up 0.37% year on year; Liangang Steel oriented silicon steel base material sales reached 0.344 million tons, up 37.6% year on year.

② Price: The company's gross margin declined. 2024H1, the company's gross margin was 7.03%, down 2.27 pcts year on year, Q2. The company's gross margin was 8.14%, down 3.05 pcts year on year, up 2.28 pcts month on month.

③ Profits of subsidiaries: Affected by falling steel prices and high raw material costs, the profits of the subsidiaries Valin Xianggang, Valin Liangang, and Valin Henggang declined by 61.3%, 65.6% and 66.1%, respectively. Meanwhile, Auto Board achieved revenue of 6.188 billion yuan, up 14.17% year on year; net profit of 1.133 billion yuan, up 10.61% year on year.

Future core highlights: Accelerated upgrading of production line structures, refined management to reduce costs and increase efficiency ① Regional leader, southern quality steel production base. The company has production bases in Xiangtan City, Loudi City, Hengyang City, Guangdong Province, and Yangjiang City in Guangdong Province. The products cover four series of wide and thick plates, hot and cold rolled sheets, wire bars, and seamless steel pipes with nearly 10,000 product specifications. The product structure is complete, the production process is leading in the industry, and the main varieties have strong flexible production switching capabilities, and the product structure continues to differentiate between middle and high-end quality.

② The company accelerates the restructuring and upgrading of production lines. 2024H1, Valin Xianggang High Fourth Line completed rolling and commissioning of a full range of specifications. The entire line was put into operation in late June. It mainly produces high-end products such as high-end spring steel, cold heading steel, and bearing steel.

Valin Xianggang's new thick plate tempering line is progressing in an orderly manner and is expected to be put into operation within the year; Valin Liangang Silicon Steel Testing and R&D Center was unveiled and officially put into use; the first phase of cold-rolled silicon steel was put into operation on schedule, and construction of projects such as cold-rolled silicon steel phase II and cold-rolled high-end home appliance panels was accelerated; VAMA Phase II was successfully put into operation, and a new breakthrough in multi-component integration was achieved.

③ Improve the level of refined management, and achieve new results by reducing system costs and creating efficiency. First, continue to reduce process costs and strive to eliminate the impact of the shift from the “fine materials policy” to the “combination of fine materials and economic materials” on the cost of iron water. Since the second quarter, the company's iron and water costs have been reduced month-on-month; the second is to continue to reduce energy costs. The company continues to strengthen secondary energy recycling and continuously increase self-generating capacity; third, financial costs continue to be low.

Investment advice: As a leading enterprise in Hunan, the company's product structure is continuously optimized and upgraded. We expect the company to achieve net profit of 3.528/4.105/4.459 billion yuan respectively in 2024-26, corresponding to the closing price on August 28. PE is 8, 7, and 6 times, respectively, to maintain the “recommended rating”.

Risk warning: Prices of raw materials fluctuate at a high level, downstream demand falls short of expectations, and production capacity falls short of expectations.