Event Overview: The company released its 2024 three-quarter report. With 2024Q1-Q3, the company achieved revenue of 30.941 billion yuan, a year-on-year increase of 12.2%; net profit to mother of 0.584 billion yuan, an increase of 85.1%; net profit after deducting non-return to mother of 0.461 billion yuan, an increase of 59.3% year-on-year. With 2024Q3, the company achieved revenue of 10.644 billion yuan, a year-on-year increase of 3.9% and a decrease of 3.2%; net profit to mother of 0.156 billion yuan, an increase of 53.1% year-on-year and a decrease of 48.9% month-on-month; net profit without return to mother of 0.152 billion yuan, an increase of 66.7% year-on-year and a decrease of 21.4% month-on-month.

Comment: Q3 sales declined year on year, and gross margin increased year on year

1. Volume: Q3 sales declined year-on-year. 2024Q1-Q3, the company sold 1.92 million tons of 300 series stainless steel coils, up 13.86% year on year, 0.37 million tons of 400 series stainless steel coil, up 42.79% year on year; Q3, 300 series stainless steel coil sales were 0.64 million tons, down 4.95% year on year, down 7.25% month on month, and 400 series stainless steel coil was 0.13 million tons, up 22.20% year on year and 0.07% month on month.

2. Price: Gross margin increased year-on-year. Q1-Q3, the company's 300 series stainless steel coil was 13,786 yuan/ton, down 8.49% year on year, 400 series stainless steel coil was 7,447 yuan/ton, down 1.83% year on year; Q1-Q3, gross margin was 5.74%, up 1.04 pct year on year; Q3 gross margin was 5.61%, up 0.99 pct year on year, down 1.06 pct month on month.

Future core focus: diversified development, new production capacity continues to advance 1. Multiple projects are being built in an orderly manner, and sales volume continues to grow. Guangdong Yongjin's “annual processing 0.35 million ton wide precision stainless steel strip technology transformation project” and Zhejiang Yongjin's “0.195 million ton ultra-thin precision stainless steel strip processing project” released production capacity. At the same time, Vietnam's Yongjin's production capacity utilization rate was further increased, further enhancing the company's overall profitability. The company plans to produce and sell 3.2 million tons of cold-rolled stainless steel in 2024, an increase of about 13.5% over the previous year, and the company's scale effect is expected to gradually show.

2. A fixed increase of 1.2 billion yuan was raised to guarantee construction capital for production expansion projects. The company completed a fixed increase in April 2023, issuing 444,115,47 shares at an issue price of 27.02 yuan/share, and raised about 1.2 billion yuan in capital for 0.22 million-ton cold-rolled stainless steel in Yongjin, Gansu and 0.35 million-ton cold-rolled stainless steel projects in the third phase of Guangdong Yongjin.

3. Implement diversified development strategies and lay out the special case material business for titanium alloys and cylindrical batteries. In 2022, the company plans a “new titanium alloy material project with an annual output of 0.06 million tons” and a “special shell material project for cylindrical batteries with an annual output of 0.225 million tons”. As of 2024H1, the 0.015 million-ton titanium alloy new material project is 61.52%, and the engineering progress of the special shell material project for cylindrical batteries is 18.98%.

Investment advice: With the gradual commissioning of the company's multiple precision cold-rolled stainless steel strip projects and the horizontal expansion of the new materials business, we expect the company's net profit to be 0.743/0.819/0.906 billion yuan respectively in 2024-2026, corresponding to the closing price on October 30. PE in 2024-2026 will be 9/8/8 times in sequence, maintaining the “recommended” rating.

Risk warning: The project process falls short of expectations; demand for stainless steel falls short of expectations; raw material prices fluctuate greatly.