Incident: In the first three quarters of 2024, the company achieved operating income of 111.666 billion yuan, -7.15% YoY, and realized net profit to mother of 1.771 billion yuan, or -56.86% YoY. In Q3 2024, revenue was 35.716 billion yuan, -12.28% YoY, -8.19%, and net profit to mother 0.44 billion yuan, -71.39% YoY, -53.22%.

The Q3 company's performance is superior to the industry, and its free cash flow has been at a medium to high level since 2017: in 2024, the total profit of the ferrous metal smelting and rolling processing industry was -33.8 billion yuan, the loss of tons of steel was 142 yuan/ton, while Q3's profit was 0.913 billion yuan; since 2017, the average free cash flow in a single quarter of the company was 1.329 billion yuan, and the company's free cash flow in the 2024Q3 single quarter was 1.956 billion yuan.

Production line equipment continues to be upgraded, and the proportion of various steels is expected to increase further. In the first half of 2024, the company completed trial production of high-end non-oriented electrical steel for thin-gauge NEV drive motors. Production and sales reached the annual production target of 0.2 million tons of unoriented silicon steel products, further enhancing the competitiveness level of the company's silicon steel products. The first step of the company's silicon steel phase II construction is progressing in an orderly manner, and it is expected to be put into operation in the first quarter of 2025. Since 2024, production line certification and patented product certification of the second phase of the automotive board project (0.45 million tons of galvanizing production capacity) have progressed in an orderly manner, striving to achieve production in 2024 and contribute more high value-added products.

After completing the ultra-low emission transformation and construction of the silicon steel project at the end of 2025, the company's dividend ratio is expected to increase further.

In recent years, the company's capital expenditure has mainly focused on the three categories of ultra-low emission transformation, production line upgrading and product restructuring, and digital intelligence. Of the fixed asset investment in the company's newly started projects in 2024, ultra-low emission transformation projects accounted for 49%, product upgrade projects accounted for 45%, and the remaining 6% were digital intelligent transformation and upgrading projects. As projects such as ultra-low emission transformation and silicon steel are fully completed and put into operation by the end of 2025, the company's capital expenses will be reduced. As capital expenses decrease and free cash flow increases, there is room for further increases in the company's dividend ratio in the future.

Formulate the “Double Improvement of Quality Return” special action plan, highlighting the company's medium- and long-term investment value: On October 8, 2024, the company issued the “Notice on Promoting the Implementation of the “Double Improvement of Quality Return” Special Action Plan, which is as follows: (1) Accelerate high-end, intelligent and green transformation and upgrading to promote high-quality enterprise development; (2) Develop new quality productivity and achieve new breakthroughs in marketing, research and production; (3) Deepen the reform of the “Three Systems” to continuously improve the effectiveness of governance; (4) Adhere to investors' needs as the guide and continuously improve the quality of information disclosure; (4) Adhere to investor needs as the guide and continuously improve the quality of information disclosure; 5) Build The stable and transparent dividend mechanism actively rewards all shareholders. Among them, from July to September 2024, Hunan Iron & Steel Group Co., Ltd., the controlling shareholder of the company, and its co-actors increased their shares by 2% in the secondary market, demonstrating the management's confidence in the company's long-term development.

Profit forecast, valuation and rating: We maintain the company's 2024-2026 net profit forecast of 2.838, 3.094, and 3.286 billion yuan respectively. As a leading company in the steel industry, Valin Steel's variety structure is expected to be further advanced and maintain the company's “increase” rating.

Risk warning: The price of raw materials remains high; the share of grade steel has not increased as much as expected.