occurrences

The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 15.887 billion yuan, YoY -6.37%, net profit to mother 0.655 billion yuan, YoY -26.29%, net profit after deducting 0.357 billion yuan and YoY -48.98%. The company's non-recurring profit and loss for the first three quarters of 24 was 0.299 billion yuan, YoY +57.4%, which included 0.36 billion yuan in government subsidies for the current period.

Among them, 2024Q3 achieved revenue of 5.562 billion yuan, YoY -5.69%, realized net profit of 0.228 billion yuan, YoY -32.37%, net profit of 0.121 billion yuan after deduction, YoY -51.64%.

Core views

Weak demand is putting pressure on revenues. Overall downstream demand has been weak since '24. In the first three quarters of '24, the company signed new contracts of about 21.926 billion yuan, YoY -4.34%, of which the Q3 new contracts were about 7.57 billion yuan and YoY -3.74%. According to the company's announcement, due to the company's adoption of a “customized according to demand, production determined by sales” production model, production was also affected. Steel structure production in the first three quarters of 24 was about 3.2507 million tons, YoY + 0.58%, and the growth rate slowed markedly (YoY +28.4% in 2023). According to the company's announcement, the pricing of the company's products is based on the “material price+processing fee” model, and the continuous decline in raw steel prices (average price YoY -8.4% in the first three quarters of 24) led to falling product prices and putting pressure on revenue.

Steel prices are expected to stabilize, intelligent transformation continues to advance, and unit profits can be expected to improve. According to our estimates, gross tons/net profit (excluding subsidies) for the first three quarters of 24 years decreased by 22/113 yuan year on year to 419/117 yuan, respectively. We believe that the main reason for the sharp decline in net profit per ton is the increase in cost per ton brought about by intelligent transformation. According to our estimates, R&D expenses per ton increased by 26 yuan year-on-year during the reporting period. According to Mysteel, with the support of policies such as trade-in automobiles and home appliances and large-scale equipment upgrades, the manufacturing industry will continue to pick up, supporting a rebound in steel prices. Steel prices have picked up since late September. We believe that a steady recovery in steel prices is expected to drive improvements in unit profits, and the continued promotion of intelligent transformation is expected to improve production efficiency and continue to strengthen the company's competitive advantage.

Investment advice

As a leader in traditional steel structure manufacturing, the moat brought about by the advantage of scale is becoming more and more obvious, and intelligent transformation will further improve efficiency and profitability in the future. Due to effects such as the continued decline in steel prices in the first three quarters, net profit from 24-26 was lowered to 0.883/1.07/1.174 billion yuan, corresponding to EPS 1.28/1.55/1.70 yuan and PE 13.04/10.76/9.81 according to the closing price on November 11, maintaining the “buy” rating.

Risk warning

Risk of fluctuations in raw material prices; risk of capacity utilization improvement falling short of expectations; risk of advancing intelligent transformation falling short of expectations