Key points of investment

Incident: The company released its 2024 semi-annual report. In 2024, H1 achieved operating income of 4.831 billion yuan, +28.33%; net profit to mother 0.644 billion yuan, -9.56% year over year; net profit after deducting non-return to mother 0.653 billion yuan, +33.99% year on year. Among them, the company achieved revenue of 2.442 billion yuan in Q2 of 2024, +17.08%; net profit attributable to mother and net profit of 0.316/0.313 billion yuan after deduction, respectively, were -34.09%/+16.34% year-on-year.

Operating performance improved steadily, and investment income dragged down overall performance.

In 2024 H1, the company's net profit to mother, net profit after deducting non-return to mother, and net profit to mother after deducting investment income from joint ventures reached 6.44, 6.53, and 589 million yuan, respectively, with year-on-year changes of -9.56%, +33.99%, and +81.06%, respectively. Among them, the company's non-recurring profit and loss decreased sharply year over year during the reporting period, mainly due to a significant year-on-year decrease in fair value change profit and loss from government subsidies received by the company and holding (or disposal) of transactional financial assets and liabilities. Furthermore, during the reporting period, the company's investment income in joint ventures and joint ventures was drastically reduced from 0.447 billion yuan in the same period last year to 0.055 billion yuan, which dragged down overall performance.

The revenue contribution of high-end products is growing steadily, and the product structure continues to be optimized.

1) Looking at the product structure, according to the order of revenue growth, H1's revenue for composite pipes, alloy materials, fittings, seamless pipes and welded pipes in 2024 changed by +5335.05%, +177.42%, +37.90%, +20.89%, and -16.01%, respectively. Among them, the revenue of ○1 composite pipe products increased dramatically and gross profit changed from negative to positive, mainly due to the company's gradual results in cultivating the composite pipe market, and the new performance of Jiuli Europe acquired in 2023; ○2 The increase in revenue of alloy materials products and a sharp increase of 18.55 pcts in the same period of the previous year was mainly due to the increase in the overall output of alloy companies, and through cost reduction and middle- and high-end market layout, the new domestic and foreign markets developed by the company achieved sales in the current period; ○3 The increase in revenue of pipe fittings products was mainly due to new breakthroughs in the company's prefabricated parts business and high value-added products This is due to sales achieved in overseas markets.

2) Looking at the downstream application industry, the revenue of the H1 petroleum, chemical and gas industry in 2024 was 2.997 billion yuan, a significant year-on-year increase of +39.30%, accounting for more than 60% of total revenue. The main reason for the increase in revenue is that the company actively explores and lays out domestic and foreign petrochemical and high-end product markets, and some projects achieved sales during the current period.

Overall, the company continued to increase R&D and marketing of products with high added value and high technology content during the reporting period, driving continuous optimization of the product structure and steadily improving the revenue contribution of high-end products and the company's overall profitability.

R&D investment continues to grow, and high-end production capacity is gradually being released.

In 2024 H1, the company's R&D investment reached 0.186 billion yuan, a year-on-year increase of 20.01%, driving a steady improvement in the company's technological innovation capabilities. In June 2024, the company issued the “Notice on Investing in the Construction of a High-Performance Pipeline Project with an Annual Output of 20,000 Tons of Nuclear Energy and Oil and Gas”. Considering that the construction period of the project is about 18 months, we expect the production capacity of the project to be gradually released in 2025-2026, further supporting the company's revenue and performance growth.

Profit forecast: We predict that the company will achieve net profit of 1.509, 1.677, and 1.932 billion yuan respectively in 2024-2026, corresponding PE of 12.5, 11.2, and 9.7 times, respectively. Give it a “buy” rating.

Risk warning: the risk of a sharp rise in upstream raw material prices; the risk that overseas market expansion falls short of expectations; the risk that downstream demand falls short of expectations; the risk that the pace of capacity expansion falls short of expectations.