The company announced 24Q3 results: revenue of 0.407 billion yuan (yoy -0.42%, qoq -2.49%); net profit to mother 0.07 billion yuan (yoy -0.38%, qoq +21.05%). 24Q1-3's cumulative revenue was 1.104 billion yuan (yoy +2.35%); net profit to mother was 0.15 billion yuan (yoy -15.21%). As domestic economic policies continued to be introduced in Q3, iron ore prices stabilized in the short term; the company's iron ore production stabilized and the main goal was to achieve better profits, actively reduce costs and increase efficiency, and maintained a “hold” rating.

The month-on-month increase in Q3 performance was mainly due to falling asset disposal and financial expenses. According to Wind, the average price of 65% iron powder in Zibo was 956 yuan, down 8.7% month-on-month from the average price of 24Q2 to 1,047 yuan, and the company's gross sales margin fell from 18% in 24Q2 to 17.1%. The decline in gross margin was lower than the price decline. We believe it was mainly due to the company's cost reduction and efficiency; the company established a “smaller accounting unit” as a management tool to continuously optimize production processes, implement accurate mineral distribution, and strengthen cost control.

Furthermore, the month-on-month improvement in 24Q3 results was mainly due to asset disposal income of about 10.13 million yuan, and management expenses and financial expenses also declined slightly. The company paid cash dividends in Q2 and Q3. As of 24Q3, the cumulative dividend rate was about 27.7%.

Iron ore is mainly stable in the short term, and supply pressure is high in the medium term

In September, with the introduction of domestic economic support policies one after another, the steel industry also gradually emerged from the loss situation of the entire industry. By mid-October, the profit margin of 247 steel companies in the industry had risen to more than 70%, and steel prices and iron and water production had also rebounded. As a result, the supply and demand pattern of iron ore has improved in the short term, and the price of 62% grade iron ore has rebounded to around $100. We believe that since domestic iron ore statistically available stocks are still high and supply has not decreased, iron ore prices may remain mainly fluctuating at $90-100. However, in the medium to long term, there are still tens of millions of tons of additional iron ore projects to be completed and put into operation overseas in 25, and global steel supply and demand are stabilizing, so we believe that a significant increase in iron ore supply may put downward pressure on iron ore prices in the future.

A target price of 6.00 yuan was given to maintain the “hold” rating

As domestic economic policies continue to be introduced in Q3, iron ore prices have stabilized in the short term; the company's iron ore production is stable and the main goal is to achieve better profits, and actively reduce costs and increase efficiency. We have lowered the company's production cost assumption. The company's EPS is expected to be 0.38/0.40/0.42 yuan in 24-26, respectively (previous value 0.37/0.38/0.39 yuan).

The average PE (2025E) value of comparable companies is 12.3X. Considering that the company competed for iron ore survey prospecting rights in the Dazhang area of Qihe County, iron ore resource reserves were further increased. The company was given a PE valuation of 15.0 times in 25 years, corresponding to a target price of 6.00 yuan (previous value of 5.62 yuan), maintaining a “hold” rating.

Risk warning: downstream demand falls short of expectations, steel industry policy changes.