Event: The company released its 2021H1 results. 2021H1 achieved revenue of 25.460 billion yuan, +89.79% year on year; net profit of returned mother was 996 million yuan, +159.24% year on year, net profit of non-return mother was 961 million yuan, +173.25% year on year. On a quarterly basis, 2021Q2 achieved revenue of 14.973 billion yuan, +99.50% year on year, +42.77% month on month; net profit of return to mother was 627 million yuan, +163.77% year on year, +74.86% month on month; net profit of non-return mother was 612 million yuan, +196.75% year on year, +75.69% month on month. The performance was in line with expectations.

Comment: High steel prices are compounded by location advantages, and profits have improved significantly

① Steel prices have risen sharply, and the company's gross profit has improved. (1) The company 2021H1 produced 2.266,500 tons of hot-rolled coils, +4.44% over the same period last year, reaching 53% of the annual production target. (2) The average sales price of the company's 2021H1 hot-rolled coil without tax was 4,586 yuan/ton, an increase of 44.08% over the previous year. The steel industry maintained a high level of prosperity, and the significant rise in steel prices drove the company's steel gross margin to 13.08%.

② The net profit of the subsidiary Ningbo Steel increased sharply. Ningbo Iron & Steel, a wholly-owned subsidiary, is close to Beilun Port. Purchased iron ore, coal, and coke can all be unloaded directly to its own toll yard. The raw fuel transportation conditions are convenient, and demand for steel in the Yangtze River Delta region is strong, the sales radius is small, and logistics costs are significantly lower than the industry level. Ningbo Steel achieved net profit of 853 million yuan in 2021H1, +266.87% year on year, contributing 86% of the company's net profit to the mother.

③ The three-fee rate continues to decrease. The company's cash holdings have increased dramatically in recent years. The company's 2021H1's interest income has reached 157 million yuan, and the three-fee rate has continued to decrease. The company's 2021H1 three-fee rate is only 0.40%, down 0.15pct from the same period in 2020.

Core future highlights:

① R & D innovation promotes product transformation and upgrading. The company deepened its product development strategy, developed and produced various high-end steel materials to replace imports, such as steel for battery cases and new high-strength automobile steel. In 2020, it produced 2.148,400 tons of high-quality specialty products, accounting for 49.13%, and achieved an efficiency increase of 98 million yuan.

② Use your strengths to lay out the digital economy industry. The first phase of Hanggang Steel's cloud computing data center project passed completion and acceptance, and leasing agreements have been signed with some customers. The first phase of Zhejiang Cloud Computing (budget: 1,995 million yuan, IRR = 10.33%) is currently under construction. The company leverages its competitive advantages in energy consumption, power supply and land to accelerate the layout of the digital economy industry and form a new profit growth point.

Performance forecast: The “double carbon target” regulates domestic steel production capacity. Consumption resilience is expected to support steel prices to remain high. At the same time, the company enjoys superior location conditions in the Yangtze River Delta. It is predicted that the company will achieve net profit of 2,037 billion yuan, 2,255 billion yuan, and 2,484 million yuan in 2021-2023. The corresponding EPS will be 0.60 yuan, 0.67 yuan, and 0.74 yuan respectively, and the PE corresponding to the current stock price (August 20) will be 8.8 times, 8.0 and 7.2 times respectively. The first coverage will give the company a “prudent increase in holdings”

ratings.

Risk warning: downstream demand falls short of expectations, price increases of raw materials exceed expectations, macro-risk