The company released a three-quarter report: 24Q3 achieved revenue of 25.285 billion yuan (yoy -8.56%, qoq -6.85%) and net profit of -0.191 billion yuan (year-on-year loss). 2024Q1-3 achieved revenue of 81.97 billion yuan (yoy -3.59%), net profit of 0.204 billion yuan (yoy -78.57%), deducted non-net profit of 0.002 billion yuan (yoy -99.75%). Steel demand was weak in the third quarter, steel prices continued to decline, industry operations were under pressure, and the company lost money in a single quarter. Considering the pattern of overcapacity in the steel industry, it is still difficult to change; however, the company strives to increase the production ratio of key products such as electrical steel and automobile panels, in an effort to form a better gross profit margin compared to the industry average, and maintain an “gain” rating.

Due to reasons such as weak prosperity in the 24Q3 steel industry and increased asset impairment, the company lost money in a single quarter, weak industry sentiment, reduced other earnings, compounded asset impairment and loss of investment income, which led to the company's loss in Q3. According to the China Steel Association, the steel price index fell 8.5% in the first three quarters. During this period, the average profit margin of steel companies was 0.64%, down 0.72 pct from the previous year. Among them, steel prices continued to fall due to weak domestic demand in Q3. According to Mysteel, the profit margins of 247 steel companies fell from around 50% in June to almost the entire industry's losses. The operating environment for steel companies in the third quarter was particularly severe. The company's gross profit margin for Q3 sales was 3.4% (down 1.4 pct), and gross profit was slightly lower than period expenses, taxes and surcharges; the main reason for the increase in losses was that the company's other income (government subsidies) decreased by 0.227 billion yuan to 0.115 billion yuan month-on-month, while the combined loss of asset impairment and investment income in a single quarter was about 0.192 billion yuan.

The company's key products or benefit from continuous domestic industrial policies

Shougang Co., Ltd. continues to target world-class enterprises and is firmly committed to the strategic strength of “green manufacturing, intelligent manufacturing, quality manufacturing, lean manufacturing, and accurate service”. Adhering to the development strategy of continuous leadership of electrical steel, refinement and strengthening of automobile boards, and high-end breakthroughs in tinned (chrome) plates, 24H1 key products accounted for 75%, an increase of 9 pcts over the previous year, reaching the highest level in history. The State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, and 7 ministries and commissions including the Ministry of Commerce issued the “Implementation Rules on Vehicle Trade-in Subsidies”. The Ministry of Industry and Information Technology, the Ministry of Transport and other ministries and departments have also successively issued the “Notice on Launching 2024 New Energy Vehicles to the Countryside Campaign” and the “Action Plan for Large-scale Transportation Equipment Renewal”; and the expansion of domestic power grid investment, combined with overseas transformer upgrades; we believe it will benefit the company's key products.

A target price of 3.69 yuan was given to maintain the “gain” rating

Considering the weak demand for steel and the pressure on the industry's operation, we assume that in 24-26, the company's EPS will be 0.08/0.10/0.13 yuan (previous value 0.10/0.12/0.15 yuan), BVPS will be 6.41/6.48/6.58 yuan (previous value 6.42/6.51/6.64 yuan), and the average PB (2025E) of comparable companies will be 0.57 times, giving the company 0.57 times the PB valuation in 25 years, corresponding to the target price of 3.69 yuan (previous value 3.15 yuan). Maintain an “Overweight” rating.

Risk warning: Fluctuating commodity prices and increased competition have led to a decline in the gross profit of the company's key products.