Incident: The company announced that 2024H1 achieved revenue of 10.326 billion yuan, a decrease of 6.73%; net profit to mother of 0.428 billion yuan, a decrease of 22.58%; net profit of 0.236 billion yuan, a decrease of 47.50%. Among them, Q2 revenue of 5.899 billion yuan decreased by 2.56%; net profit to mother of 0.225 billion yuan decreased by 36.13%; net profit not attributable to mother of 0.148 billion yuan decreased by 51.56%.

Competition intensified, compounded by falling steel prices, putting pressure on net profit per ton. 23Q2-24Q2's net profit for single-ton processing was 258.45/221.10/139.30/95.29/125.01 yuan, respectively, and 24Q2 single-ton processing net profit showed a month-on-month recovery mainly due to an increase in capacity utilization; 23Q2-24Q2 disclosed that the processing fee for a single ton of large orders was 6130.5/5783.0/5531.2/5776.5/5418.9 yuan respectively (excluding incoming material processing contracts when calculating processing costs). The average price of hot-rolled coils, one of the company's main materials, was 3947/3907/ 3919/3945/3913 yuan/ton. On the one hand, the pressure on 2024H1 operating profit is due to increased competition within the industry due to the slowdown in operating rates, and on the other hand, due to the decline in steel prices, cost accounting is high.

Gross margin stabilized, and R&D expenses continued to be invested. In the first half of the year, the company's gross sales margin was 10.71% with an increase of 0.06pct; the cost ratio for the period was 6.67% and 1.76pct, of which the public sales/management and R&D/finance expenses ratio were 0.55%/4.64%/1.48%, the year-on-year change was 0.03pct/1.47pct/0.27pct, and the R&D cost rate of 3.21% increased by 1.37pct. With continuous investment in intelligent transformation, the company achieved phased success; the asset and credit impairment loss rate increased 0.18% 0.19pct; net interest rate to mother 4.14%, down 0.85pct. In the first half of the year, the company's revenue during the period increased by 2.3 pct compared to 99.14%, and the current payment ratio increased by 14 pcts; the net cash outflow from operating activities was 0.045 billion yuan, an increase of 0.699 billion yuan over the previous year.

As of the end of June, the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, accounts receivable plus contract liabilities was $30.7/8.85/4.08/1.07 billion, respectively, a change of 12.52%/2.72%/-7.31%/7.39% from the beginning of the year.

Investment proposal: We expect the company to achieve operating income of 25.778/28.994/33.213 billion yuan and net profit to mother of 1.011/1.134/1.373 billion yuan in 2024-2026. The PE corresponding to the closing price on August 30 was 8.16/7.27/6.01 times, respectively, maintaining the “gain” rating.

Risk warning: Economic recovery falls short of expectations, capacity utilization falls short of expectations, risk of raw material price fluctuations.