Matters:

On October 30, 2024, the company released the “Report for the Third Quarter of 2024”. In the first three quarters of 2024, the company achieved operating income of 30.941 billion yuan, an increase of 12.18% over the previous year; achieved net profit of 0.584 billion yuan, an increase of 85.12% over the previous year; and realized net profit without deduction of 0.461 billion yuan, an increase of 59.30% over the previous year.

Commentary:

Production and sales are growing steadily. According to the “Notice on Major Operating Data for the Third Quarter of 2024” announced by the company, in the first three quarters of 2024, the company achieved sales of 1.9222 million tons of 300 series cold-rolled stainless steel and 0.3699 million tons of 400 series cold-rolled stainless steel, totaling 2.2921 million tons, an increase of 17.71% over the previous year. Among them, in the third quarter, the company achieved sales volume of 0.6384 million tons of 300 series cold-rolled stainless steel and 0.0.1328 million tons of 400 series cold-rolled stainless steel, totaling 0.7712 million tons, which remained stable with the same period last year. According to the company's 2023 annual report guidelines, the target sales volume for the full year of 2024 is 3.2 million tons, and the company completed tasks well in the first three quarters.

Tons of steel profits have increased. Considering that the company confirmed non-operating profit and loss in the first half of the year (net income from relocation compensation of 108.9 million yuan in area A of the Zhejiang headquarters), the company's net profit for the second quarter was large, according to the calculation of net profit not returned to mother after deduction, the company's net profit per ton of steel for the first three quarters of 2024 was about 201 yuan, an increase of 52 yuan over the same period in 2023. We believe that the company is actively facing market changes and adjusting the product structure, which reflects the improvement of the company's overall profitability. In terms of profit margin, the company's gross sales margin for the first three quarters was 5.74%, and the net sales margin was 2.39%, up 0.95 percentage points and 0.84 percentage points, respectively, from the end of 2023.

Investment advice: The company's production and sales scale has increased, and the company has a diverse layout, so future growth can be expected. In the long run, as a leader in cold rolling of stainless steel, the company has increased the room for growth through a diversified layout of new industries (titanium alloy+pre-nickel plating). In terms of the main business, in the face of changes in the market demand structure, the company expanded the scale of production and sales while actively responding to market changes and adjusting the structure. The profitability of the company's stainless steel business recovered significantly in 2024. Considering the company's good profit situation in the first three quarters and achieving growth, we raised the company's profit forecast for 2024-2026 to 0.725 billion yuan, 0.773 billion yuan, and 0.791 billion yuan (previous values were 0.695 billion yuan, 0.729 billion yuan, and 0.769 billion yuan). Considering the stability of the company's main business and the promotion layout of new industries, the company can be expected to grow in the future. Combined with a certain stable profit and valuation level of companies in the special steel processing industry, the company will be given a price-earnings ratio of 12 times in 2025, corresponding to a target price of 25.32 yuan/share. There is room for an increase of about 33% compared to the current stock price, maintaining a “strong push” rating.

Risk warning: Downstream demand for stainless steel falls short of expectations, and the supply of raw materials is insufficient.