Core Viewpoint - Company reported significant improvement in performance for the first half of 2025, particularly in Q2, exceeding market expectations due to lower raw material prices, operational efficiency, and stable competition in high-end steel products [2][11]. Financial Performance - Company achieved a total revenue of 630.92 billion yuan in H1 2025, a decrease of 16.93% year-on-year, while net profit attributable to shareholders rose by 31.31% to 17.48 billion yuan [11]. - In Q2 2025, revenue was 328.63 billion yuan, down 15.52% year-on-year, but net profit increased by 26.22% to 11.86 billion yuan [11]. Operational Insights - The improvement in profitability was attributed to three main factors: significant decline in raw material prices compared to steel prices, elimination of short-term disruptions from the previous year, and effective cost management across production bases [2]. - The company maintains a direct supply model for specialty steel, with pricing determined 1-2 months in advance based on raw material costs and customer requirements [3]. Market Outlook - The third quarter is traditionally a slow season, with a decline in demand for thin plate products, while demand for VM automotive plates showed improvement [4]. - The company anticipates that industry profitability may narrow in Q3 due to rising raw material costs, particularly for coking coal, which has increased more than steel prices [4]. Export Strategy - The company plans to enhance its overseas presence, particularly in the Middle East and Europe, despite challenges posed by anti-dumping measures affecting "buy order" exports [5]. Regulatory Compliance - The company has applied for "leading normative enterprise" status under the 2025 Steel Industry Normative Conditions, which aims to promote high-quality development in the industry [5][6]. Production Guidance - In H1 2025, the company sold 11.1 million tons of steel, a decrease of 12.6% year-on-year, and expects to adjust production based on downstream demand and profitability [6]. Project Developments - The company has made progress in its silicon steel projects, with the first production line for non-oriented silicon steel expected to meet demand from key customers starting January 2025 [8]. Tax and Financial Strategy - Other income decreased due to changes in tax policies affecting advanced manufacturing VAT rebates, while the company continues to benefit from a 15% corporate income tax rate for high-tech enterprises [9]. - The company plans capital expenditures of 5.467 billion yuan in 2025, focusing on product structure upgrades and low-emission projects, with a cash dividend ratio expected to increase in the future [10].

Group 1: Financial Performance - The company's performance in the first half of the year, especially in Q2, showed significant improvement year-on-year and quarter-on-quarter, exceeding market expectations due to three main factors: a notable decline in raw material prices, elimination of previous short-term disruptions, and stable competition in the high-end steel market [2][4]. - In H1 2025, the company achieved a steel sales volume of 11.1 million tons, a decrease of 12.6% year-on-year, with an adjusted decline of about 10% when excluding direct sales of steel billets [8]. Group 2: Pricing and Inventory Management - The pricing for specialty steel products is negotiated individually, typically 1-2 months in advance, based on current raw material costs and customer requirements, ensuring a relatively stable profit margin compared to ordinary steel [3]. - The company maintains a lean inventory strategy, with iron ore inventory cycles of approximately 22-25 days and coal/coke inventory cycles of 10-15 days, using a first-in-first-out method for accounting [3]. Group 3: Market Outlook and Demand - The third quarter is traditionally a slow season, particularly for thin plate products, with a slight decline in demand from sectors like home appliances and engineering machinery, although there was some improvement in automotive steel orders [4]. - The company anticipates that industry profitability may narrow in Q3 due to rising raw material prices, particularly coking coal, which has increased significantly more than steel prices [4]. Group 4: Export Strategy - The company views "buy order exports" as detrimental, leading to lower overseas prices and triggering anti-dumping measures, and plans to enhance its overseas presence, particularly in the Middle East and Europe [5]. Group 5: Compliance and Industry Standards - The company has applied for "leading standard enterprise" status under the 2025 Steel Industry Norms, which aims to promote high-quality development and optimize supply in the steel industry [6][7]. Group 6: Capital Expenditure and Dividends - The company plans to invest in projects focused on product structure upgrades and ultra-low emissions, with a capital expenditure of approximately 1 billion yuan in 2025, where 40%-50% will be allocated to ultra-low emissions projects [11]. - The cash dividend ratio has steadily increased, reaching 34% of net profit for 2024, with projections for a combined ratio of 44%-54% for 2024 and 2025 due to ongoing share buyback plans [11].

Group 1: Sales and Production - The proportion of specialty steel sales is projected to increase from 60% in 2022 to 65% in 2024, with further growth expected due to new projects [2] - The company has maintained a low export volume to the U.S., with only 0.8% of total exports in 2024, focusing primarily on domestic demand [2] - The company’s overseas revenue accounts for approximately 7% of total revenue, indicating limited impact from changes in international trade policies [2][3] Group 2: Environmental and Financial Strategies - The company has completed its ultra-low emission transformation project and aims to achieve an environmental performance rating of A by the end of the year [4] - Capital expenditures for 2025 are projected at 5.467 billion yuan, focusing on product structure upgrades and digital transformation [4] - The cash dividend for 2024 is set at 1.00 yuan per 10 shares, with a payout ratio of 34% of net profit, an increase of 2.7 percentage points from the previous year [4] Group 3: Product Development and Market Position - The first phase of the silicon steel project has reached full production capacity of 200,000 tons, contributing positively to the company's performance [5] - The company is transitioning from "premium steel" to "specialty steel," with new high-speed wire rod projects achieving quarterly full production status [5] - The automotive sheet joint venture is progressing with phases one and two at full production, while the third phase is under feasibility study [7]

Financial Performance - The company's income tax expenses increased year-on-year in Q1 2025 due to profit growth and tax reconciliation, while other income decreased, impacting overall profitability [2] - The effective corporate income tax rate remains at 15% for high-tech enterprises, with expectations for Q2 tax expenses and VAT deductions to stabilize [2] Market Strategy - The subsidiary Yangchun New Steel maintains a low-cost operational strategy, achieving a leading market share and sales price in Guangdong despite the downturn in the real estate sector [2][3] - The company has no immediate strategic adjustments planned, focusing on maintaining profitability in the rebar market [3] Export and Trade Impact - The company's export volume to the U.S. is minimal, accounting for only 0.8% of total exports in 2024, with overseas revenue making up about 7% of total income [4] - The company continues to monitor international trade policies and adjust its export strategies accordingly [4] Environmental Initiatives - The company is on track to complete ultra-low emission upgrades by the end of June 2025, aiming for an environmental performance rating of A by year-end [5] - Capital expenditures for 2025 are projected at 5.467 billion yuan, focusing on product structure upgrades and digital transformation [5] Product Development - The first phase of the silicon steel project has reached full production capacity, contributing positively to the company's performance [6][7] - The automotive sheet joint venture has achieved full production, with plans for further development and product certification [7] Financial Returns - For 2024, the company plans to distribute a cash dividend of 1.00 yuan per 10 shares, representing 34% of net profit, an increase of 2.7 percentage points from the previous year [5] - The total planned share buyback and dividend payout will account for 44%-54% of the company's net profit for 2024 [5]

Summary of LiuGong Co., Ltd. Conference Call Company Overview - LiuGong Co., Ltd. reported a net profit attributable to shareholders of 260 million yuan in Q1 2025, ranking 7th among steel companies, an improvement of 11 positions year-on-year, attributed to internal management optimization, capacity release at the Fangchenggang base, raw material structure optimization, and macroeconomic improvements [2][4] Key Points Financial Performance - In 2024, LiuGong achieved an operating income of 70.1 billion yuan and a net profit of 32 million yuan, reducing losses by 57.23% year-on-year, ranking 22nd among 36 steel companies, an improvement of 6 positions [4] - Q1 2025 net profit of 260 million yuan represents a significant year-on-year increase, with a ranking improvement of 11 positions [2][4] Operational Insights - The Fangchenggang base's first phase is completed, with no specific plans for the second phase yet; the focus is on consolidating reform results and improving product structure [2][7] - Steel industry demand has fluctuated in Q1 2025, with stable demand for industrial high-line and full-diameter products; however, U.S. tariff policies have negatively impacted downstream demand, particularly affecting cold-rolled plate prices [2][8] Raw Material Strategy - LiuGong has gradually increased the proportion of imported coking coal, primarily from Mongolia, Australia, and Canada, with an average import ratio of around 50% and a peak of 60% for injection coal [2][8] - The company maintains cooperation with domestic large mines to mitigate potential risks associated with raw material supply [2][8] Production and Cost Management - Q1 2025 production volume increased year-on-year, with no significant changes expected in Q2 production plans, which will depend on profitability and policy arrangements [2][9] - The cost of iron water at the headquarters is approximately 200 yuan/ton higher than that of Guangxi Steel, with expected gross profit margins for steel products declining to 6%-7% [2][11][12] Environmental Compliance and Future Investments - LiuGong has completed ultra-low emission requirements and plans to invest about 4 billion yuan in related projects in 2025, with potential reductions in future fixed asset investments [3][17] - The company will carefully consider dividend policies in light of its good performance in Q1 2025, focusing on shareholder value management [3][18] Research and Development - R&D expenses have fluctuated significantly, with Q1 2025 expenses at 160 million yuan, down from 500 million yuan in Q1 2024; future R&D spending is expected to stabilize around 3.5% of revenue, focusing on specialty steel and technological innovation [16] Market Conditions - The steel industry is experiencing downward pressure on profitability, with cold-rolled prices under pressure leading to potential shifts in production focus if conditions do not improve [12][14] Taxation - LiuGong expects to maintain a low income tax rate due to accumulated losses exceeding 2 billion yuan over the past few years, with no income tax anticipated for Q2 and Q3 2025 [13] Conclusion LiuGong Co., Ltd. is navigating a challenging steel market with strategic management improvements, a focus on raw material sourcing, and compliance with environmental regulations, while also considering shareholder returns and future investments in R&D and production capacity.

Investment Rating - The report maintains a "Buy" rating for the company [5] Core Views - The company's revenue for 2024 is projected at 681 billion RMB, a year-on-year decrease of 3.51%, with a net profit attributable to shareholders of 2.65 billion RMB, down 48.64% year-on-year [2] - In Q4 2024, the company achieved revenue of 182.24 billion RMB, an increase of 24.34% quarter-on-quarter and 7.31% year-on-year, with a net profit of 7.81 billion RMB, marking a turnaround from losses and a year-on-year increase of 1835% [2] - The rare earth business has seen both volume and price increases, significantly improving the company's profitability [3] - The company has optimized its product structure, with a 9.65% year-on-year increase in steel sales and a record production of over 1.5 million tons of rare earth steel [3][4] Summary by Sections Financial Performance - The company's revenue for 2023 was 70.57 billion RMB, with a projected decline to 68.09 billion RMB in 2024, followed by further declines in 2025 [10] - The net profit for 2023 was 515 million RMB, expected to drop to 265 million RMB in 2024, but forecasted to rebound to 2.24 billion RMB in 2025 [10] - The diluted earnings per share (EPS) is projected to increase from 0.006 RMB in 2024 to 0.10 RMB by 2027 [10] Business Segments - The rare earth segment has benefited from rising prices and improved demand due to export controls and reduced overseas supply [4] - The steel business is expected to benefit from reduced production and a downturn in iron ore prices, leading to a potential reduction in losses [4] Future Outlook - Revenue forecasts for 2025, 2026, and 2027 are 61.68 billion RMB, 63.52 billion RMB, and 64.57 billion RMB respectively, with net profits expected to rise significantly in the following years [5] - The company is positioned to benefit from its strong rare earth resource base and strategic partnerships, which may enhance both performance and valuation in the future [4]