The company is deeply involved in cashmere clothing and electric metallurgy and chemical industries. Among them, the power metallurgy subsidiary accounts for the largest share of net profit: the company's main business is divided into two major sectors: clothing and electric metallurgy and chemical. The company's net profit in 2023 was 3.7 billion yuan (the subsidiary Electric Metallurgy Group's net profit accounted for 78%). The main business of Electric Metallurgical Group (78% of the company's shareholding ratio in 2023) is: power generation, power supply, ferroalloy, coal processing and product sales, water diversion, water supply, and sewage treatment.

The company is a leading ferrosilicon company, and the price of ferrosilicon rises or provides flexibility for the company's performance: in 2023, the company's ferrosilicon production was 1.54 million tons, with a domestic market share of 28%, ranking first in the industry. The highest price of ferrosilicon rose to 0.017 million yuan/ton in 2021. In the same year, the company's net profit to mother reached a record high. Among major products, ferrosilicon gross profit increased the most in absolute year-on-year (1.9 billion yuan), accounting for 30% of ferrosilicon gross profit, while in 2023, the share of ferrosilicon gross profit fell to 19%. If the pressure on domestic energy consumption increases in the future, the supply of ferrosilicon may be suppressed (see 2021), prices are expected to rise and drive the company's performance back up. Using 2023 as a benchmark to calculate elasticity, if the average price of ferrosilicon rises by 1,000 yuan/ton, the company's net profit to mother will increase by 27% under the premise that costs and production remain the same.

The advantages of coal resources are remarkable. Investment income from its own coal and Yongmei mining provides a safety cushion for the company's performance: According to the corporate bond credit rating report, as of the end of 2019, the company had 0.289 billion tons of coal reserves, 4.8 million tons of coal washing capacity, and a gross profit of 1.089 billion yuan in the company's coal sector in 2023, accounting for 16% of the gross profit ratio; in addition, Electric Metallurgical Group held 50% of Yongmei Mining's shares, and achieved a net profit of 1.891 billion yuan in 2023, The company contributed 0.952 billion yuan in investment income, accounting for 25% of net profit.

At the same time, it lays out the chemical and cashmere garment industry: (1) the chemical industry chain includes products such as chlor-alkali chemicals, polysilicon, synthetic ammonia, urea, etc., accounting for 29% of gross profit in 2023; (2) The company has been deeply involved in the cashmere industry for more than 40 years and is the world's largest cashmere garment manufacturer and sales enterprise, accounting for 29% of the gross profit of clothing in 2023.

The average cash dividend for 2021-2023 was 2.4 billion yuan, and the dividend ratio of 8.6% ranked among the top in the A-share steel sector.

The company's total cash dividends for 2021-2023 were 2.9, 2, and 2.2 billion yuan respectively. Based on the company's total cash dividends in 2023, the dividend rate on October 09, 2024 was 8.55%, ranking second in the A-share steel sector, and the corresponding dividend ratio ranked 1st and 7th in the electricity and coal sectors.

Profit forecast, valuation and rating: The company has abundant coal resources, has its own power plants, and integrates “source network load storage” with the park's recycling industry chain and the two major electricity loads of downstream metallurgy and chemicals. We predict that the company's net profit for 2024-2026 will be 2.042, 2.534, and 2.928 billion yuan, respectively. If expectations for energy consumption control heat up in the future, the company's profitability is expected to continue to improve. Coverage for the first time will be given a “gain” rating.

Risk warning: Economic growth falls short of expectations; downstream demand falls short of expectations; energy consumption policies fall short of expectations in the later stages; insufficient customer ability to consume cashmere products or changes in consumption philosophy.