China Galaxy Securities: Profit recovery in the steel industry has accelerated, highlighting the advantages of leading companies.

China Galaxy Securities released a research report stating that the profitability of the steel industry has significantly improved, and cost control has been effective. On the demand side, the real estate sector is entering an adjustment period, with the rise of new infrastructure and new energy driving the manufacturing use of steel, supporting the prosperity of plates and special steel, and the industry concentration steadily increasing. On the supply side, policies to prevent the intensifying competition have been strengthened, with the Ministry of Industry and Information Technology issuing the "Steel Industry Stable Growth Work Plan (2025-2026)," proposing an average annual growth of around 4% in the value added of the steel industry from 2025 to 2026, and orderly elimination of excess capacity. Recommendations include: (1) continuous optimization of product structure, focusing on stable high-dividend industry leaders; (2) combating "overlapping" with high technological barriers, with significant potential for performance and valuation recovery; (3) focusing on upstream resources with improved supply pattern in the medium to long term. The main points of China Galaxy Securities are as follows: Overall improvement in industry profitability, effective cost control Profits have significantly improved, with effective cost control. According to the National Bureau of Statistics' report on "0.1% Increase in Profits of Large-scale Industrial Enterprises nationwide from January to November 2025," the total profits of the black metal smelting and rolling industry reached 111.50 billion yuan, an increase of 1,752.2% year-on-year. From Q1 to Q3 of 2025, SW steel achieved a net profit attributable to the parent company of 20.147 billion yuan, a non-net profit attributable to the parent company of 17.670 billion yuan, both turning losses into profits compared with the same period last year. The average sales gross profit margin of the industry in the first three quarters was 12.35%, an increase of 1.33 percentage points year-on-year; the net profit margin was 3.74%, an increase of 1.11 percentage points year-on-year. The improvement in cost control efficiency, combined with the structural improvement in industry supply... The profit improvement coverage widens, with industry leaders leading the recovery pace... Risk warning: risks of supply-side contraction falling short of expectations; risks of downstream real estate and infrastructure demand falling short of expectations; uncertainties in raw material prices such as iron ore and coal; uncertainties in domestic and foreign policies, etc.