Event: The company released its report for the third quarter of 2024. The company achieved operating income of 4.225 billion yuan in the first three quarters, a year-on-year decrease of 17.41%; net profit attributable to owners of the parent company was 0.411 billion yuan, a year-on-year decrease of 33.82%; and basic earnings per share were 0.46 yuan, a year-on-year decrease of 34.29%.

Quarterly profits declined, and net sales margins fell. The company achieved net profit attributable to mother of 0.085 billion yuan in the third quarter of 2024, a year-on-year decrease of 50.18%, a year-on-year decrease of 46.64%, and realized a net profit of 0.095 billion yuan, a year-on-year decrease of 46.08% and a year-on-month decrease of 28.32%; the company's 2023Q4-2024Q3 quarterly gross sales margins were 18.49%, 16.27%, 16.18%, and 17.10%, respectively. Net sales interest rate declined in the third quarter of 2024, and financial expenses for the quarter increased sharply by 0.057 billion yuan month-on-month; the decline in oil casing profitability was the main reason for the decline in the company's performance. The gross margin of oil casing in the first half of 2024 was 15.2%, a year-on-year decrease of 5.98 pcts.

New projects are progressing in an orderly manner, and structural transformation and upgrading continues. The company has released production capacity through the PQF project and continued technological upgrading. Currently, it has a production capacity of 1 million tons of special special pipes. The company's sales target in 2024 is 0.9 million tons, an increase of 14.2% over the previous year, and the production increase is expected to accelerate further. According to the announcement, the company plans to invest 8,500 tons of new energy and semiconductor specialty materials projects to increase the proportion of products with high added value and high technology content; the subsidiary Changzhou Changbao Jingte Steel Pipe Co., Ltd. plans to invest in the construction of a 0.05 million ton precision tube project for new energy vehicles; The construction progress of the Changbao Jingte Automobile Precision Tube Project and the Changbao Pleasant Special Materials Project in the first half of 2024 was 60% and 33.99% respectively; on October 24, 2024, the board of directors of the company deliberated and passed the “Proposal on Additional Investment in the Changbao Pleasant Special Materials Project” and agreed to increase the fixed asset investment scale of the Pleasant Special Materials Project from 0.506 billion yuan to 0.703 billion yuan. Currently, the project has entered the equipment installation stage. Some production lines will be installed, commissioned and tested, respectively. It is expected that the entire line will be completed and put into trial production in 2025 In the third quarter of this year, with funding in place, subsequent projects are expected to accelerate, and the company's profitability may continue to improve.

Downstream prosperity improved, and demand continued to expand. According to the company's annual report, it is expected that the domestic oil well pipe market will be generally stable in 2024, and there may be more incremental market demand and development space in the development of unconventional oil and gas resources, which is beneficial to the company's demand for oil well pipes and ancillary products; the total amount of thermal power investment in January-August 2024 was 73.8 billion yuan, an increase of 25.3% over the previous year, and the high increase in investment in thermal power construction is expected to drive better demand in the boiler tube market.

Investment advice. The company focuses on the manufacture of small to medium caliber special pipes. Production growth is combined with structural improvements. Continued improvement in downstream demand and declining cost factors support its profit release. We expect the company to achieve net profit of 0.61 billion yuan, 0.7 billion yuan, and 0.76 billion yuan respectively from 2024 to 2026, corresponding to PE of 7.6, 6.6, and 6.0 times, maintaining a “buy” rating.

Risk warning: Prices of upstream raw materials have risen sharply, demand for steel falls short of expectations, and there is uncertainty about the development of new businesses.