Key takeaway

The company expects to achieve a net profit attributable to the parent company of RMB430-490mn in 1H26, up 50-70% YoY, and a net profit attributable to the parent company excluding non-recurring items of RMB380-430mn, up 60-80% YoY. In 1H26, the company's production volume reached 2.7mn tons, a YoY increase of 14.3%, while new orders grew by 12.4%. In 2Q alone, production volume hit 1.5mn tons and new orders reached RMB8.75bn, both setting new historical records. The company's intelligent transformation has achieved remarkable results, with sufficient orders on hand and output maintaining double-digit growth, and its performance has improved significantly following the decline in R&D expenses and the easing of pressure from falling steel prices.

Event

The company announced its 1H26 earnings forecast, expecting to achieve a net profit attributable to the parent company of RMB430-490mn in the first half of the year, up 50-70% YoY, and a net profit attributable to the parent company excluding nonrecurring items of RMB380-430mn, up 60-80% YoY.

Quick Take

Earnings are expected to increase significantly. The company expects to achieve a net profit attributable to the parent company of RMB430-490mn in 1H26, up 50-70% YoY, and a net profit attributable to the parent company excluding nonrecurring items of RMB380-430mn, up 60-80% YoY. Intelligent transformation has achieved remarkable results. Downstream demand is driven by high-tech manufacturing and major projects, ensuring sufficient orders. Production volume and capacity utilization rate have entered a steady upward trajectory, driving substantial performance growth. In the first half of the year, the company's output was 2.70mn tons, with 1Q and 2Q output increasing by 14.7% and 13.9% respectively, and the output growth helps dilute unit fixed costs and expenses. In addition, the weakening impact of R&D expenses and falling steel prices on performance also positively contributed to the better-than-expected earnings growth. Starting from 4Q25, the company's R&D expenses declined, with singlequarter R&D expenses dropping from RMB170-230mn to RMB90-110mn, improving profit by RMB80-120mn. Factors that previously weighed heavily on performance, such as steel prices, capacity utilization rate, and R&D expenses, have all improved, and the company has entered an upward performance cycle following substantial growth in production volume.

Single-quarter production and newly signed orders hit a record high. The company's production in 1Q26/2Q26 was 1.204/1.5 mn tons respectively, up 14.7%/13.9% YoY; the production output set another record high in 2Q alone, the capacity utilization rate reached 115%, and the upper limit of annual production was expanded to 6 mn tons. The company has a clear business model, and its performance can be broken down into production volume × (processing fee per ton - variable cost per ton) - fixed costs such as depreciation - R&D expenses + non-recurring gains and losses, making production volume growth the core driver of performance growth. In terms of orders, the company's newly signed orders in 1Q26/2Q26 reached RMB7.41bn/RMB8.75bn, up 5.1%/19.4% YoY, implying an order volume of 1.48mn/1.70mn tons. The 2Q data also hit a record high, and sufficient orders on hand will effectively ensure the delivery of output and performance.

We raise our earnings forecasts while maintaining the Buy rating and the target price of RMB 26.01 unchanged. The company's net profit attributable to the parent company in 1H26 is expected to grow by over 50%, as production expansion drives rapid performance growth. We estimate the company's EPS for 2026-2028 to be RMB1.25/1.41/1.54 (the previous forecast for 2026-2028 EPS was RMB1.17/1.35/1.48), we maintain the buy rating and the target price of RMB26.01 unchanged.

Risks:

The main operational risks of the company arise from sharp fluctuations in steel prices, weaker-than-expected economic recovery, and the company's slower-than-expected capacity expansion:

1) Steel prices significantly impact the company's downstream demand, as sharp fluctuations or excessively high prices will prompt customers to adopt a wait-and-see attitude, leading to fewer newly signed contracts and declining orders. If steel prices rise too rapidly, it may lead to downward pressure on the company's net profit attributable to the parent company excluding non-recurring items;

2) The company's downstream demand mainly consists of manufacturing, infrastructure, and real estaterelated industries, and a slowdown in manufacturing fixed investment, lower-than-expected physical workload in infrastructure construction, and weaker-than-expected recovery in real estate sales will all dampen the demand for the company's products;

3) In terms of its own operations, the decline in the company's existing capacity utilization rate and the lower-than-expected commissioning of the smart manufacturing base will also negatively impact its medium- and long-term development.