Revenue declined year over year, and gross margin declined. In the first three quarters of 2024, the company achieved revenue of 81.97 billion yuan, a year-on-year decrease of 3.59%; of these, Q3 revenue was 25.285 billion yuan, down 8.56% year-on-year and 6.85% month-on-month.

Steel prices continued to decline, mainly due to weakening overall demand in the steel industry. The company's overall gross margin for the first three quarters was 3.74%, down 1.94 pct year on year; Q3 gross profit margin was 3.41%, down 3.04 pct year on year, down 1.44 pct year on month.

Export projects continue to be developed, and coking and coal blending resources help the main steel industry. The medium and heavy plate NM500 high-strength wear-resistant steel produced by Shougang Jingtang supplies a large internationally renowned construction machinery manufacturer in Latin America. Super Strong Offshore Steel helps the construction of offshore oil fields in Guyana, and its export order acceptance capacity is constantly increasing, helping to open up new sources of profit. Furthermore, Shougang's integrated mining investment strategy takes advantage of the resource advantages of the Shouwang coal industry to actively expand the production of lean coal resources, ensure a stable supply of the Group's coking coal resources, and reduce costs and increase efficiency.

The expense ratio declined during the period, and net profit was lost in Q3. The company's expense ratio for the first three quarters was 2.85%, a year-on-year decrease of 0.09pct. Among them, the sales expense ratio was 0.20%, the same year on year; the management expense ratio was 1.06%, up 0.02 pct year on year; the R&D expense ratio was 0.52%, up 0.14 pct year on year, mainly due to the increase in the company's scientific research projects; and the financial expense ratio was 1.08%, down 0.24 pct year on year, mainly due to a decrease in interest expenses. The company's two impairment losses totaled 0.436 billion yuan, an increase of 0.037 billion yuan over the previous year. Bad debt preparations increased mainly due to increased inventory price drop losses and increased accounts receivable. In summary, in the first three quarters of 2024, the company achieved net profit of 0.204 billion yuan, a year-on-year decrease of 78.57%; Q3 net profit to mother was -0.191 billion yuan, which was a loss in a single quarter.

Operating cash flow has deteriorated, and the balance ratio has declined. The company's revenue ratio for the first three quarters was 0.4523, down 9.15 pct year on year; the payout ratio was 0.4093, down 6.30 pct year on year. Taken together, the net operating cash inflow was 0.658 billion yuan, a year-on-year decrease of 2.81 billion yuan; the net cash outflow from investment activities was 0.358 billion yuan, an increase of 0.171 billion yuan over the previous year. The company's balance ratio was 59.52%, down 0.91 pct from the end of last year, mainly due to a decrease in short-term loans and accounts payable.

Investment advice: Demand in the steel industry was weak in the first three quarters, and steel prices continued to decline, waiting for improved demand to restore performance. Considering the decline in demand, net profit due to the 2024-2026 is expected to be 0.404, 0.51, and 0.664 billion yuan, corresponding to PB of 0.5, 0.5, and 0.5, maintaining a “highly recommended” rating.

Risk warning: downstream demand falls short of expectations, risk of raw material price fluctuations, and product structure upgrades fall short of expectations.