Foreword: Why talk about needs?

We emphasized earlier that Honglu's refined management and scale effect gave it a stronger market competitiveness than its peers, and its sales growth was driven by an increase in market share. We have published reports such as “Intelligent Transformation: A Difficult and Correct Path” and “Intelligent Transformation: The Moat Continues to Widen, Production Will Reach the Level”, etc., and are clearly optimistic about the positive impact of intelligent transformation on Honglu. Although the market recognizes the long-term significance of intelligent transformation, in the context of aggregate demand under pressure, will intelligent transformation gradually weaken Honglu's competitive advantage? This report focuses on short-term (1-2 years) sources of demand in response to market concerns.

Domestic demand has reached an inflection point, and export potential is huge.

1. The downstream of steel structures is mainly investment in manufacturing, infrastructure, and public construction; the transaction area of industrial land, commercial land, etc. is a forward-looking indicator for judging subsequent demand. Since July 2024, the monthly transaction area of industrial land etc. has achieved positive year-on-year growth for several months, indicating that downstream demand has reached an inflection point.

2. Exports of steel structure products have strong tax advantages and huge export potential: a) Compared with steel exports, steel structure products still enjoy 13% export tax rebates; b) Some countries have imposed anti-dumping tariffs on Chinese steel, but no anti-dumping duties have been imposed on steel structure products. With the advancement of China's “Belt and Road” initiative, the number of overseas investment projects for Chinese enterprises is increasing, and the overseas engineering business of construction central and state-owned enterprises is growing rapidly, and the export portion will provide strong support for demand.

Investment advice: Demand is worry-free, and emphasis is placed on the importance of intelligent transformation.

Intelligent transformation will increase the company's production limit and reduce comprehensive production costs, thereby strengthening its competitive advantage. Furthermore, Honglu's huge internal demand for intelligent transformation also helps it cultivate relevant innovative enterprises (such as machine vision, various industrial robots, various algorithms and control companies), and may be able to replicate relevant experiences and products to the outside world in the future. Domestic demand has reached an inflection point, and there is huge export potential, which may dispel the market's phased concerns about intelligent transformation. Considering that intelligent transformation will have a certain impact on production, the company maintained its 24-26 net profit forecast of 1.24/1.3/1.65 billion yuan, and maintained a “buy” rating.

Risk warning: Large fluctuations in steel prices inhibit downstream demand, demand recovery falls short of expectations, capacity expansion and utilization rates fall short of expectations, and the progress of intelligent transformation falls short of expectations.