Historical review: The red gene turns crisis into opportunity and develops with high quality. China Metallurgical Science and Technology Co., Ltd. is the world's largest and strongest metallurgical construction contractor and metallurgical enterprise operation service provider.

(report producer/analyst: Zheshang Securities Kuang Peiqin Geng Pengzhi)

China Metallurgical Science and Technology Co., Ltd. (hereinafter referred to as "China Metallurgical ") is the world's largest and strongest metallurgical construction contractor and metallurgical enterprise operation service provider. Relying on the advantages of scientific research, survey, design and construction of the entire industry chain, the company has strong competitiveness in four major fields, including engineering contracting, real estate development, equipment manufacturing, resource development, and has formed eight major businesses, including metallurgical engineering, high-end housing construction, mid-to-high-end real estate, transportation and municipal infrastructure, mining construction and mineral development, core technical equipment and steel structure, environmental engineering and new energy, and characteristic theme projects.

combined with historical evolution, stock price, performance and strategy and other public disclosure information, we review and analyze MCC China in three stages:

(1) Stage 1: Red gene, continue the legend.

The predecessor of the company can be traced back to its subsidiary China Sanye , established in 1948. It was originally named Anshan Metallurgical Construction Company of the Ministry of Metallurgical. It participated in the construction of Anshan Iron and Steel Plant, the first steel enterprise in New China, and is known as the "cradle of China's metallurgical construction." The company has successively undertaken the construction projects of almost all large and medium-sized steel enterprises in China, becoming the founder of the "reinforced steel bones" in New China. Continuing the red gene, MCC Group initiated the establishment of MCC China in 2008, and in 2009, MCC China was listed in Shanghai and Hong Kong.

(2) Stage 2: Return to the main business and turn crisis into opportunity.

Before 2012, the company made continuous large-scale bad debts due to mergers and acquisitions and general contracting projects, and set aside . During the 11th Five-Year Plan period, due to factors such as the decline in the steel industry's prosperity and the risks of the company's non-related main business acquisitions, the company's cash flow continued to deteriorate from 2010 to 2012, and the performance in 2012 showed a large loss, and the capital market performed sluggishly.

After 2012, a development strategy of "focusing on the main business" will be formulated, and the main business will be returned to the main business and the pace of strategic implementation will be clarified. The company successfully turned crisis into opportunity, turned losses into profits, entered a healthy development track, and showed a strong development momentum.

After the 2013 "Belt and Road" initiative was proposed, the company has also actively gone global and accelerated the improvement of international competitiveness.

(3) Stage 3: Focus on the main business and develop with high quality.

2016 Since the present, the company has determined a high-tech and high-quality development program, and the company has moved towards a new process of -in-connotation development of . During the 13th Five-Year Plan period, the company achieved a cumulative revenue of 1.5 trillion yuan and a profit of 44.1 billion yuan. It completed the all-round deployment from top-level design to action manual to assessment system, and the "National Metallurgical Construction Team" achieved a breakthrough in the exam.

1.1. The red gene continues the legend: the founder of the "reinforced steel bones" in New China

Company is the pioneer and main force of China's steel industry. It inherits the "red gene" of the metallurgical power and leads the construction of 90% of my country's steel production capacity and 60% of the international steel production capacity.

1948, the parent company China Metallurgical Science and Technology Group Co., Ltd. devoted himself to the construction of Angang and undertaken the construction of the steel industry in New China.

In 1982, the parent company MCC Group was officially established with the approval of the State Council and is affiliated to the Ministry of Metallurgical Industry.

In December 2008, MCC Group and Baosteel Group jointly initiated the establishment of China Metallurgical Science and Technology Co., Ltd. (hereinafter referred to as "MCC China").

In September 2009, the company achieved "A+H" listing.

In December 2015, MCC Group and China Minmetals strategically reorganized, and State-owned Assets Supervision and Administration Commission of the State Council transferred MCC Group as a whole into China Minmetals Group through free transfer; in May 2019, the company became an indirect holding subsidiary of China Minmetals.

The actual controller is the State-owned Assets Supervision and Administration Commission of the State Council, and the controlling shareholder is China Metallurgical Science and Technology Group Co., Ltd.

As of the end of the third quarter of 2021, the company's controlling shareholder MCC Group directly held 49.18% of the company's equity, and the State-owned Assets Supervision and Administration Commission of the State Council was the actual controller.

has 12 Class A scientific research and design institutes and 15 large-scale construction enterprises, with 5 comprehensive Class A design qualifications and 41 special-grade general contracting qualifications, covering multiple fields such as metallurgical construction, housing construction infrastructure, real estate development, equipment manufacturing, resource development, etc.

1.2. Turn crisis into opportunity, rebirth in Nirvana: Positioning and returning to the national team of metallurgy construction

Multiple factors dragged down, and the company's development once slowed down. Affected by the superposition of "three-phase factors" such as the aftermath of the global financial crisis, the serious overcapacity of domestic steel production capacity and the "three-phase factors" such as the diversification of the waters, the company's performance fell sharply by 20.3% in 2011 and suffered a large loss in 2012. The net profit attributable to shareholders for the whole year was -6.95 billion yuan, a year-on-year decrease of -263.8%. The total inventory and receivables of in that year totaled nearly 170 billion yuan, accounting for about 80% of the revenue that year, and the debt-to-asset ratio was 83.8%. The company's stock price fell to a historical low of 1.35 yuan per share in July 2013, and the capital market performed poorly.

reshaping strategy and returning to the main business.

In 2012, the company's new management team was in place, starting from multiple dimensions such as strategy and business control, dealing with risks, returning to the main business, and strengthening the company's core competitiveness.

combined with public disclosure of information, we summarized the company's development strategy from 2012 to the following three stages:

➢ The first stage, from 2012 to 2013, overcoming difficulties and flattening the mountains.

clearly states that the company's main business is still metallurgical engineering construction. Relying on the comparative advantages of the traditional metallurgical industry, moderately extending the industrial chain and diversified development outward, and determining a reasonable " enterprise boundary " and "operation radius".

In 2012, the company formulated a development strategy of "focusing on the main business": focusing on the main business, improving and strengthening, moderately diversified, and steady development.

In August 2013, the company determined the general guidelines of "focusing on MCC's main business and building a better MCC".

➢ The second phase, from 2014 to 2015, integrate the advantages of the industrial chain and consolidate the main business of metallurgy.

Company has determined to consolidate and strengthen the leading position in the field of metallurgical engineering with high-end core technologies and the integration advantages of the entire metallurgical industry chain.

After 2015, the company has deployed from top-level design, action manual, assessment system, etc., and has clarified the first and second echelons of design enterprises and the matching construction subsidiaries, forming the basic formation and core team of the "national team" of metallurgy construction in accordance with the 8 most of the positions and 19 business units of steel metallurgy.

➢ The third stage, starting a business again from 2016 to the present.

As the steel industry gradually transforms into green and intelligent, the company proposes to focus on its main business again, and the national team of metallurgical construction will be the top and higher and start a business again. Focusing on green and low-carbon, energy conservation and environmental protection, intelligence, information technology improvement and technological innovation, the company's new core competitiveness will be steadily built.

1.3. Focus on the main business and high-quality development: the business structure "four beams and eight pillars"

Company has formed a comprehensive business pattern with the "four beams and eight pillars" related and complementary and significant synergistic effects. During the 13th Five-Year Plan period, the proportion of the main business of engineering contracting revenue continued to increase, and real estate development, equipment manufacturing, and resource development businesses formed a diversified supplement.

revenue side, engineering contracting accounts for the highest proportion:

In 2020, China MCC's main business revenue was 400.1 billion yuan, of which the engineering contracting sector achieved revenue of 363.965 billion yuan, accounting for 91.0% of the revenue; real estate development, equipment manufacturing, and resource development achieved revenue of 24.114, 11.057, and 4.384 billion yuan, respectively, accounting for 6.0%, 2.8% and 1.1% of the revenue respectively.

gross profit side, it still has the highest proportion of engineering contracting:

2020 China MCC achieved gross profit of 45.429 billion yuan. Among them, engineering contracting achieved gross profit of 37.017 billion yuan, accounting for 81.5%, real estate development, equipment manufacturing, and resource development achieved gross profit of 4.981, 1.539 and 1.238 billion yuan, accounting for 11.0%, 3.4%, and 2.7%, respectively, and the gross profit of the four major businesses accounted for 98.6%.

The company's revenue and net profit attributable to shareholders grew steadily, with the compound growth rate reaching 16.2% and 10.0% respectively during the 13th Five-Year Plan period.

revenue side, in the third quarter of 2021, the company achieved operating income of 349.5 billion yuan, a year-on-year increase of 30.4%. From 2016 to 2020, the revenue increased from 219.6 billion yuan to 400.1 billion yuan, with a CAGR+16.2%. Especially after 2017, the revenue growth accelerated, and the growth rate remained above 17% in the past three years; on the profit side, in the third quarter of 2021, the company achieved net profit attributable to shareholders of 6.13 billion yuan, a year-on-year increase of 33.0%. From 2016 to 2020, the net profit attributable to shareholders of 7.86 billion yuan, a CAGR+10.0%. The growth rate of net profit declined in 2017-2019, and returned to a high growth rate from 2020. The gross profit margins of the four major businesses of

are relatively stable, and the overall gross profit margin is stable at around 2%.

In the first half of 2021, the company's engineering contracting and equipment manufacturing businesses were 8.4% and 13.8% respectively, and the gross profit margins of real estate development and resource development businesses were relatively high, 20.7% and 42.4% respectively. The gross profit margins of each business were -1.22pct, -0.95pct, +0.37pct, and +21.61pct respectively compared with the same period last year. The gross profit margins of each business were relatively stable.

The gross profit margin of resource development business has increased significantly, mainly due to the stabilization and recovery of prices of polysilicon and nickel. The production and operation tasks in the first half of the year were completed smoothly, and key operating indicators such as output and sales increased significantly year-on-year.

In 2020, the company's comprehensive gross profit margin and net profit margin attributable to shareholders recorded 11.4% and 2.0%, which was -0.2pct and +0.1pct respectively in 2019, and its profitability remained relatively stable.

The three-fee ratio remains stable, the debt-to-asset ratio has steadily decreased, and the profitability is good.

In the third quarter of 2021, the company's sales, management and financial expense ratios were 0.5%, 4.9%, and 0.4%, respectively, with a total of 5.8%, which was -0.46pct compared with the same period last year. In 2020, the three-fee ratio basically remained at 7.0%; in 2020, the company's debt-to-asset ratio was 72.3%, a decrease of 2.2pct from 2019, and the capital structure was optimized; 's return on equity ROE was 8.0%, an increase of 1.3pct from 2019, and the company's profitability was stable and relatively good.

two-month control drives financial indicators to continue to improve, and the net cash flow remains healthy.

In the third quarter of 2021, the company's receivable period and inventory turnover days fell to 57.5 and 53.8 days respectively, with a significant decline in the period from 2016 to 2020, and its operating capacity continued to improve; in terms of operating cash flow, the net amount increased from 18.56 billion yuan in 2016 to 28.03 billion yuan in 2020, mainly from the increase in cash received from the sales of products and the provision of services. 2021 The large expenditure in the first half of the year was mainly due to the increase in cash paid for purchases of goods and services; investment cash flow was mainly due to the impact of the company's engineering contracting and real estate development business;

In the past two years, the large net outflow of the company's financing activities was mainly due to the total amount of cash paid for repaying debts and the total amount of cash paid for distributing dividends, profits or interest payments paid for repaying the debts in the current period was greater than the cash obtained from the loan.

2. The cornerstone of the ballast: metallurgical engineering re-starts, non-steel engineering efforts to "invest and build"

Metallurgical engineering is stable and non-steel engineering is growing rapidly. In terms of revenue, from 2016 to 2020, the revenue of metallurgical engineering steadily grew, with CAGR +17.4%, accounting for about 1/4 of the engineering contracting business; the revenue growth rate of transportation infrastructure in non-steel projects was the fastest, corresponding to CAGR +24.8%.

New signing orders, the new signing of project contracts in 2017-2020 will be CAGR+20.8%, of which the new signing of metallurgical engineering will be CAGR+22.1%, and the new signing of non-steel engineering will be CAGR+20.5%, mainly steel engineering.

2.1. Metallurgical Engineering: Benefiting from the short term "double carbon", working together in medium- and long-term transformation, operation and maintenance

masters the core technologies of eight major parts of the steel industry, and the entire metallurgical engineering industry chain has significant advantages.

Company has a deep accumulation in the eight major links of the steel production process (mining, ore dressing, sintering, coking, ironmaking, steelmaking, hot rolling, cold rolling) engineering design: China Enfei , China Huaye Deeply cultivated and mineral processing links; sintering technology mainly looks at MCC Changtian , MCC North; MCC Coke Aid specializes in coking technology; MCC CIDI specializes in blast furnace ironmaking; converter, refining, continuous casting and other steelmaking links, as well as hot rolling technology, and is specialized in MCC Tiangong, MCC Jingcheng , MCC South and other subsidiaries, and cold rolling technology mainly looks at MCC South.

Company has the advantages of the entire industrial chain of metallurgical engineering construction, and firmly accounts for 90% of the domestic and 60% of the global metallurgical market.

serves steel enterprises throughout the entire life cycle, and the group's military has "distinguished military achievements".

As the "national team of metallurgical construction", MCC China is the metallurgical engineering contractor with the longest professional operation history and the strongest professional design capabilities in China.

Since 1948, the company's predecessor has participated in the construction of Angang Steel, the "cradle of China's steel industry". In 1955, 1957, 1965 and 1978, the company successively built Wuhan Iron and Steel , Baogang , Pangang and Baogang , and participated in the planning, design or construction of almost all large steel joint enterprises in China, becoming the dominant force and leader in the construction of my country's metallurgical industry.

Currently, the company has 3 professional geological survey institutes, 3 national metallurgical engineering professional research institutes, 11 professional metallurgical engineering professional design institutes, and 16 professional metallurgical engineering professional construction enterprises. It represents the leading survey, consulting, design, design, and construction capabilities in the field of metallurgical engineering in my country, and can provide comprehensive services such as survey, consulting, design, construction, technical transformation, maintenance and inspection for the "full life cycle" of steel joint enterprises.

In the short term, the "dual carbon" target catalyzes new processes and new construction needs, and the sector has no danger of high growth. At the policy end, the central government has intensively introduced major policies to urge the optimization of the stock and industrial structure of high-energy-consuming industries.

On October 24, 2021, the State Council issued the "Action Plan for Carbon Peak Before 2030", requiring the industrial field to accelerate green and low-carbon transformation and high-quality development of , and strive to be the first to reach carbon peak .

On November 9, 2021, the National Development and Reform Commission and 10 other ministries and commissions issued the "14th Five-Year Plan for National Clean Production Implementation Plan for Key Industry Clean and Low-Carbon Transformation Plan", requiring new projects in steel and cement clinker industries to strictly implement equal or reduced capacity replacement. During the "14th Five-Year Plan" period, the steel industry must complete the ultra-low emission transformation of 530 million tons of steel production capacity and the clean production transformation of 460 million tons of coking capacity.

industry side, around the "dual carbon" goal, industry associations such as steel, non-ferrous metals have successively released target years and reduction indicators for carbon peak.

The steel and nonferrous metal industries are expected to achieve carbon emission peak by 2025.

Carbon emission reduction Specific indicators: By 2030, the carbon emissions of the steel industry will be reduced by 30% from its peak, and it is expected to achieve a carbon emission reduction of 420 million tons; by 2040, the nonferrous metals industry will strive to achieve a carbon emission reduction of 40%. In terms of carbon reduction measures, energy conservation and efficiency improvement, optimization of process flow, and carbon cycle/carbon capture technology will all be used as the carbon reduction paths in the above industries.

As the "dual carbon" process continues to deepen, new processes and new technologies are expected to continue to be promoted and popularized in the above-mentioned industrial fields, and are expected to continue to catalyze the demand for professional engineering construction such as technical transformation of industrial production lines and new production lines construction.

In the short term, the metallurgical industry mainly relies on two major means of "capacity reduction and replacement" and equipment update and consumption reduction.

According to the statistical caliber of my steel network, from 2017 to 2025, my country's steel industry plans to withdraw 325 million tons of ironmaking production capacity, replace 285 million tons of new construction production capacity, plan to withdraw 360 million tons of steelmaking production capacity, and replace 320 million tons of new construction steelmaking production capacity.

capacity replacement is mainly concentrated in the 13th Five-Year Plan and the 14th Five-Year Plan. Among them, the iron and steel production capacity withdraws by more than 200 million tons in the 13th Five-Year Plan period, and the replacement of new construction capacity is significantly lower than the withdrawal capacity; during the 14th Five-Year Plan period, my country's steel industry plans to withdraw 116 million tons of iron and steel production capacity, 120 million tons of new construction capacity, 108 million tons of steel production capacity withdrawal, and 116 million tons of new construction steel production capacity; according to the Steel Industry Association, as of October 21, more than 650 million tons of steel production capacity in China have been undergoing ultra-low emission transformation.

In the long run, short-process steelmaking, green hydrogen smelting, carbon capture and other technologies will help the steel industry achieve the goal of "carbon neutrality".

In 2020, the crude steel production capacity of long-process and short-process steelmaking enterprises in my country accounted for 87.1% and 12.9% respectively, and the proportion of short-processes increased by 3% compared with the end of the 12th Five-Year Plan.In terms of process technology, the company has vigorously tackled key core technologies for greening and low-carbonization to help implement carbon emission reduction in the steel industry.

Company mainly focuses on the "pain points" of environmental protection factors such as water, gas, sound, and slag, and has formed a number of advanced, practical and efficient technologies and products, and established a circular economy system for the steel industry. The subsidiary MCC Jingcheng adopts hydrogen smelting to significantly reduce carbon emissions in the ironmaking production process by more than 70%; MCC Southern uses the short-process steelmaking process route of electric furnace steelmaking → outside the furnace refining → continuous casting and rolling "trial-in-one" short-process steelmaking process route to replace the traditional long-process process, achieving carbon emission reduction of 65% to 75%, and saving 45% to 50% of comprehensive energy consumption. In terms of project orders, the company undertakes a number of new steel mill construction projects, with abundant new signing and in-hand orders, and has no short-term performance. 21H1, the company signed a new metallurgical project contract amount of 98.113 billion yuan, a year-on-year increase of 57.68%. It successfully signed the Baoshan Base Second Steelmaking Metal Materials Stove, the Wuhan Iron and Steel Co., Ltd. One-four sintering energy-saving and environmental protection upgrade and transformation project, and the Yukun Steel Group's capacity replacement, upgrading and transformation 1650mm hot-rolled strip steel general contracting project, etc. The leading position in the field of metallurgical engineering has been continuously consolidated.

In the medium and long term, we will focus on remote diagnosis and core equipment operation and maintenance services, and start a new business in the metallurgical sector, which is expected to start a secondary growth curve of the main business of metallurgical engineering. The holding subsidiary MCC Baosteel Technology is the first professional company in China to produce and operate metallurgical products and operation services. Its main business includes equipment operation and maintenance services, production and operation services, equipment manufacturing and new materials, etc. It has integrated and professional production and operation services capabilities in the entire industrial chain and the entire process such as metallurgical engineering technology upgrading and transformation and engineering consulting.

➢ In terms of business development, Currently, MCC Baosteel Technology has achieved business coverage of international professional companies in major large steel mills and overseas steel mills. Its business scope includes integrated services for the maintenance of all metallurgical process chain equipment such as ironmaking, steelmaking, hot rolling, and cold rolling. The company is now the "first domestic and first-class" metallurgical production and operation service provider.

➢ In terms of market layout, MCC Baosteel Technology has built a new pattern of metallurgical operation service market with full coverage. Based on the Shanghai Baosteel market, the company has built a "seven regional markets" covering regional businesses such as East China, South China, Central China, Southwest China, North China and Southeast Asia, and has created a three-dimensional market structure of "Shanghai, National and Overseas", laying a solid foundation for the company's long-term sustainable development.

➢ In terms of project acceptance, since 2021, MCC Baosteel Technology has signed nearly 30 metallurgical operation service projects. In November 2021, it has won consecutive bids on major metallurgical operation service projects such as the improvement and transformation of the automation capacity and equipment capacity of heavy steel rolling hot coil production line, and the overhaul of Qinggang's steel-making continuous casting machine equipment. The company is expected to form a new growth point in metallurgical engineering business.

2.2. Non-steel engineering: Focus on large areas and new industries, strengthen investment and financing, and operation assets to expand

(1) Housing construction and infrastructure projects

From the industry perspective, new models such as ABO, EPC+F have gradually become the mainstream financing methods for construction central enterprises to participate in area project development: the ABO (Authorize-Build-Operate, authorized-construction-operation) project under the background of government authorization, the core logic is that local governments will use authorized platform companies as project owners to entrust urban construction or the construction and operation of a major project to state-owned platform companies under the government at the same level to implement, and provide necessary resources and financial support. This authorized operation is the separation of government, enterprises, and government affairs in the legal sense.

Local governments have changed from direct "providers" of public products to "regulators" and "rules makers" of market-oriented entities, and state-owned platform companies have changed from the initial single investment and financing platform to the "integrators" of market resources and provide public services. The government can better perform its responsibilities such as rule-making, financial support, and regulatory assessment, and state-owned companies can better integrate resources to provide investment, construction and operation services through market competition mechanisms.

EPC+F is financing EPC, which is a new project management model derived from the needs of owners and markets.Among them, EPCh is the general contractor for design, procurement, and construction projects, and F is financing investment, that is, the project contractor solves some project financing funds for the owner, or assists the owner in financing to start the project. The "EPC+F" mode is relatively simple to operate, improving the efficiency of project implementation.

"Investment and Financing" model leads the company, and the company has increased its efforts to undertake the "high-tech comprehensive" projects of housing construction and infrastructure. In terms of business model, the company continues to deepen cooperation with strategic customers such as local governments and large enterprises, continues to innovate business models, flexibly use new business models such as ABO, PPP, EPC+F, etc., acquire the "high-tech comprehensive" projects of housing construction and infrastructure, promote the development of the contracting model towards high-end and systematic integration, and actively expand business such as urban renewal and transformation, and overall development of areas. In terms of financing costs, the company's current corporate bond interest rate is low, with a weighted average face value rate of 3.75%, with a large financing scale and a total issuance scale of 9.79 billion yuan, which can effectively ensure the completion of investment and financing projects. In terms of business acceptance, the company won the bid for investment and financing business projects in 2020 to reach 87.2 billion yuan, and undertakes many landmark major projects. Among them, the ABO project of the urban village continuous development in the main urban area of ​​ Baoding City is the largest single contract signed by the company in recent years using a new business model.

21 In the first three quarters of 2021, the cumulative new signing of housing construction and infrastructure projects was RMB 4403 and RMB 163.9 billion, a year-on-year increase of 20.8% and 36.0%. There are sufficient new signing orders and strong business development momentum.

(2) Ecological and environmental protection and water engineering

strategically lays out the field of ecological and environmental protection and water affairs, with technology, investment and engineering blooming in multiple places, and operational assets are expanding.

➢ In terms of design consulting, the subsidiary MCC Huatian has established China MCC Water Environment Technology Research Institute (MCC Huatian Water Environmental Technology Research Institute) and MCC Huatian Energy Conservation and Environmental Protection Research Institute. It has the ability to integrate the industrial chain in the fields of urban and industrial wastewater treatment and resource utilization, precise diagnosis and joint control operations of pipeline networks, and environmental improvement of urban and industrial plant areas. The subsidiary China Enfei is committed to becoming the most trustworthy international engineering comprehensive service provider and energy environment developer, and is highly competitive in the field of waste incineration design consulting. As of the end of 21H1, the company's market share in the field of large-scale incineration power generation consulting and design in the country has reached 60%.

2020, the company joined hands with its subsidiary MCC Huatian and China Enfei jointly established MCC Ecological and Environmental Protection Group Co., Ltd., focusing on the "investment, construction and operation" of water affairs, solid waste and ecological environment governance, and opening up the entire ecological and environmental protection industry chain.

➢ In terms of project undertaking, the company has strong competitiveness in the fields of comprehensive land remediation projects, water environment comprehensive improvement, soil and mine restoration, and has achieved great success in 21H1:

comprehensive land remediation project, newly signed the land remediation and development project of Xin'an County, Luoyang City, and Guangxi Zhuang Autonomous Region comprehensive land remediation EPC Project; in terms of comprehensive water environment improvement, signed a contract with the second phase of comprehensive water environment system in Jiujiang City, the second phase of comprehensive water environment system in the central urban area, the second phase of co-construction project of sewage plant network in the main urban area of ​​Yichang City, the integrated water environment construction project of Yunlian County, Yibin City, the comprehensive water environment management project of water environment in the central urban area, the sewage treatment plant project of Jinghe New City Industrial Cluster Area in Xi'an, the comprehensive management project of Maihe, Sishui River and Muji River in Wolong District, Nanyang City; in terms of soil and mine restoration, a number of representative projects have been newly undertaken in the soil restoration project of Hangzhou Steel Old Site Park, and the solid waste treatment and disposal project of Hubei Gedian relocation site.

➢ Water treatment, environmentally friendly solid waste operation and other businesses started early and have considerable scale.

1) Water sector: As of the end of 2020, the company has operated 27 water projects, with a total designed processing volume of 2.62 million tons/day;

2) Waste incineration sector: subsidiary China Enfei has wholly owned the Ganzhou Enfei Environmental Protection Energy Co., Ltd., with a total design scale of 1,200 tons of domestic waste per day.

driven by the increase in water, waste incineration and other related operating assets, the company's 20-year franchise rights totaled 9.42 billion yuan, a year-on-year increase of 24%.As of the end of 21H1, the company's franchise totaled 9.97 billion yuan, with a considerable scale.

(3) New energy engineering/process

Relying on existing business channels and R&D technical capabilities, the company has deployed new energy engineering business and technology, and has entered high-tech emerging industries such as photovoltaic power generation, new energy raw material procurement, selection and smelting.

➢ In terms of photovoltaic power generation, as of the end of 21H1, the company has signed 32/28 new orders for roof distributed photovoltaic /wind power project, including Huangshi 100MW fishing light complementary photovoltaic power station, Baotou Steel distributed roof photovoltaic power generation project, etc.

➢ In terms of mining engineering, China Enfei has about 50 core technologies and patents in the mining, selection and smelting of new energy battery metal basic materials—nickel and cobalt mines, and has participated in the joint projects of Papua New Guinea , Myanmar , Indonesia and the Philippines in the EP or EPC mode.

➢ In terms of positive electrode materials, China Enfei masters the short process technology of directly producing ternary positive electrode material precursors with low-cost refining solutions, opens up front-end smelting and back-end material preparation, and has the ability to produce ternary positive electrode material precursors on a large scale.

. Ice on the cake: Metallurgical equipment strengthens integration, resource development brings performance growth

Equipment manufacturing business has become the "hard support" of the national team of metallurgical construction, and resource development projects stabilize production and high yields increase performance. The company's equipment manufacturing sector is mainly based on multiple core manufacturing bases, and its business scope includes equipment manufacturing and steel structure business. It is an "incubator" for new metallurgical equipment products, helping to develop high-quality metallurgical engineering construction.

3.1. Equipment Manufacturing: Metallurgical equipment has distinctive characteristics, and steel structure benefits "double carbon" and is expected to grow high

(1) Business development

steel structure business: Domestic steel structure industry pioneer, with large production capacity scale and first-class technical level, and is expected to deeply benefit from the "double carbon 1+N" policy.

is the leader of large steel structure manufacturing enterprises. As of the end of 2020, there were 13 secondary subsidiaries with steel structure business, and 32 steel structure manufacturing bases (excluding the construction and shareholding enterprises), including MCC (Shanghai) Steel Structure Base, Baoye Zhengzhou Steel Structure Base, Wuye Chengdu Steel Structure Base, etc., covering almost all economic hotspots in the country. The base's own designed production capacity reaches 1.65 million tons.

In April 2018, MCC Steel Structure, with Shanghai Baoye Steel Structure as the main body, integrated the steel structure business segments of China Metallurgical 20 and Shanghai Wuye and merged to form a representative enterprise in the company's steel structure business segment. MCC Steel Structure Business segment covers large-scale public buildings and municipal public utilities, focusing on the "high-end and sophisticated Youte " project. So far, it has undertaken a series of major landmark projects such as National Stadium (Bird's Nest), China National Convention and Exhibition Center, Zhuhai Center, Guangzhou Baiyun Airport and other major landmark projects.

Equipment Manufacturing Business:

22 Home equipment manufacturing bases are spread all over the country, with the production capacity of metallurgical complete sets of equipment, and the industry characteristics are distinctive. As of the end of 2020, the company had 10 second-level subsidiaries with equipment manufacturing (metallurgical and non-metallurgical) business, and 22 manufacturing bases (excluding shareholders). The main representative products are sintering machine , ring cooling machine, industrial furnace , feeder , rolling mill , blast furnace, steelmaking, continuous casting complete sets of equipment, as well as non-metallurgical products such as amusement equipment, welding materials, and steel bar connectors.

(2) sector operating

revenue grew steadily, with CAGR+21.3% during the 13th Five-Year Plan period, and the gross profit margin was stable at around 14%. From 2016 to 2020, the revenue of the equipment manufacturing sector achieved rapid growth, with revenue increasing from 5.11 billion yuan to 11.06 billion yuan, and the CAGR reached 21.3%. The gross profit margin of the corresponding business was very stable. It increased slightly in 2020, reaching 13.9%, a year-on-year increase of 3.7pct. In the first half of 2021, equipment manufacturing achieved revenue of 6.07 billion yuan, a year-on-year increase of 26.5%. In terms of R&D expenditure, the company's R&D expenditure continued to increase from 2016 to 2020, with a year-on-year increase of 35.4% in 21Q3, and the R&D expenditure rate basically remained at around 2.8%.

(3) Highlights of development

plan to build a MCC Equipment Industrial Park, and the transformation of core R&D technology achievements is guaranteed. The company's equipment manufacturing business is mainly metallurgical equipment products, which basically covers all process links of the entire process of steel metallurgy construction. It also has a number of independent intellectual property rights and has strong complete sets of metallurgical equipment.

➢ In terms of R&D, Company currently has several national-level technology research and development centers such as the "National Steel Smelting Equipment System Integrated Engineering Technology Research Center", the "National Steel Production Energy Efficiency Optimization Engineering Technology Research Center", the "National Steel Production Energy Efficiency Optimization Engineering Technology Research Center", the "National Sintered Pellet Equipment System Engineering Technology Research Center".

➢ In terms of manufacturing, company has multiple core manufacturing bases such as MCC CITI Equipment Base, MCC Shaanxi Pressure Equipment Base, MCC Changtian Heavy Industry Base, and MCC Southern Equipment Base. Its products cover major metallurgical processes and key equipment such as sintered pellets, ironing and steelmaking, casting and steel rolling.

In the future, this sector's business will focus on the three major functional positionings of core manufacturing base R&D pilot, core manufacturing, and overall assembly integration, integrate upstream and downstream advantageous business resources, and incorporate the core equipment manufacturing system into the management of MCC Equipment Industrial Park.

3.2. Resource development: overseas layout of mining, new energy basic materials business highlights

(1) Mining

focuses on five major non-ferrous metals, nickel, cobalt, copper, zinc, and lead, and has world-class minerals. It has overseas layout of mining, selection and smelting links. The company currently develops and operates a total of 4 major mineral resource projects, including 3 mines in production, namely the Rimu Ni-Cobalt Mine in Papua New Guinea, the Duda Lead-Zinc Mine in Pakistan and the Sandak Copper Mine in Pakistan. One mining project to be started, the Ainak Copper Mine is located in Afghanistan, mainly distributed in Asia and Oceania.

is of high grade ore in hand mines and has sufficient resources.

1) Papua New Guinea's Rymu Nickel-Cobalt Mine is estimated to retain resources of 156 million tons, with an average yield of 102% in the first half of 2021. It is the mine with the highest yield and operational level among the existing laterite nickel ores in the world.

2) Pakistan Duda lead-zinc Mine is estimated to retain zinc metals of 870,000 tons and lead metal resources of 390,000 tons. It has achieved the goal of achieving production of 500,000 tons per year for two consecutive years, with both production and sales booming, and achieved a profit of over 100 million yuan in 2020.

3) The estimated resource reserved by the East Ore Body of the Sandak Copper and Gold Mine Project in Pakistan is 358 million tons, and the project's designed mining and production scale is 12,800 tons of daily ore treatment, and the average annual smelting capacity is 20,000 tons.

4) Afghan Ayaka copper deposit has a resource of 662 million tons, a copper metal volume of 11.08 million tons, and an average copper grade of 1.67%, making it a world-class super-large copper deposit.

self-held mine "fast mining and fast production" has increased performance and driven high growth in resource development revenue.

The company's resource development business is mainly concentrated in the mining, ore dressing, smelting and other fields of metal mineral resources such as nickel, cobalt, copper, zinc, and lead. At 21H1, the prices of non-ferrous metal commodities such as nickel, copper, zinc, and lead increased by about 40%, 65%, 39%, and 18% respectively compared with 20H1. The company's Paxin Ruimu Nickel-Cobalt Mine, Pakistan Duda Lead-Zinc Mine and Scientak Copper Mine were both booming.

21H1, the resource development sector achieved revenue of 3.48 billion yuan, a year-on-year increase of 42.4%. The total profit of the three mine projects in production was 1.09 billion yuan, an increase of 1.1 billion yuan from 20H1, an increase of about 150% over the whole year of 2020.

(2) Silicon-based material processing business

Master the independent research and development technology of series of silicon-based electronic materials to help the development of the national optical communication and electronic information industry.Luoyang Zhongsi High Technology Co., Ltd., a subsidiary of the company, focuses on the research and development of series of silicon-based electronic materials. The products include electronic-grade polysilicon, high-purity silicon tetrachloride, electronic-grade trichlorosilicon, etc. The products mainly serve the optical communication and semiconductor industries:

1) Electronic-grade polysilicon is the highest purity polysilicon product. It is a key basic material and strategic raw material in the semiconductor integrated circuit industry chain. It has been mass-selled;

2) High-purity silicon tetrachloride is mainly used in the preparation of optical fiber preform rods. A silicon tetrachloride production line for 10,000 tons of optical fiber and 100 tons of semiconductors has been built, with a market share of about 30%, realizing import substitution.

3.3. Real estate development: strategically layout key urban agglomerations, diversified business systems deepen urban operation and development

strategically layout three major urban agglomerations, focus on urban operation and development, and increase land reserves in key areas.

Company takes the Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei and other three major urban agglomerations as key development areas, and increases strategic land reserves through old city renovation, regional development, headquarters economy, etc., forming a first-level land development and infrastructure construction as the leader, and using second-level development as the carrier to create a "one-main N-wing" diversified business system.

21H1, the company acquired 7 lots of land through bidding and auction, covering an area of ​​422,800 square meters and a total construction area of ​​888,000 square meters, a significant increase of 331% from 206,000 square meters in 2020.

The real estate sector has stable revenue and accelerated completion.

21H1, the company's real estate development investment amount was 8.912 billion yuan, a year-on-year decline of 41%; the newly started area/completed area was 476,66/1.5029 million square meters, respectively, -69%/+42.0% respectively compared with the same period last year.

From 2016 to 2020, the company's real estate development business revenue fluctuated relatively stable. Affected by factors such as the macro-peripheral environment and the increase in raw material costs, the sector's gross profit margin fell from a high of 27.2% in 2016 to 20.7%.

. Profit forecast and valuation

4.1. Profit forecast

➢ Order end:

➢ On the one hand, driven by the "dual carbon" strategy, the demand for technical transformation and capacity replacement in the metallurgical engineering industry is expected to increase significantly in the "14th Five-Year Plan"; on the other hand, the company clearly proposed to adhere to the market development principle of "scattering nets to places with fish and grazing sheep in places with grass", and focus on new urbanization and key urban agglomerations, and increase the expansion of non-steel engineering businesses such as transportation infrastructure and housing construction projects.

Based on the above analysis and the orders in hand for various businesses, we assume that from 2021 to 2023:

(1) the company's new signing orders for metallurgical engineering 16.00%/14.00%/12.00% respectively;

(2) the company's new signing orders for housing construction projects 15.00%/13.00%/12.00% respectively;

(3) the company's new signing orders for transportation infrastructure projects 28.00%/25.00%/20.00% respectively;

(4) The company's new contracts for other projects have grown by 35.00%/25.00%/20.00% respectively; thus, from 2021 to 2023, the company's new contracts were 19.82%/17.10%/14.82% year-on-year, respectively, and the corresponding newly signed contract amounts were 11282/13211/1516.9 billion yuan respectively.

➢ Revenue and cost side:

The revenue growth rate of each business segment is shown in the following table, which corresponds to the company's total revenue from 2021 to 2023 of 484.9 billion yuan, 553.1 billion yuan and 620 billion yuan, respectively, yoy 21.19%, 14.06%, and 12.10%, respectively, and the corresponding comprehensive gross profit margin is 10.31%, 10.41%, and 10.44%, respectively.

For the four major business sectors, including engineering contracting, real estate development, equipment manufacturing, and resource development, we consider the following when calculating revenue:

1) Project contracting business segment: is based on the new order and the new revenue signing ratio in previous years. It is expected that the revenue growth rate of engineering contracting business in 21-23 will be 23.58%/14.62%/12.48% respectively, with gross profit margins of 8.90%, 9.10% and 9.20% respectively;

2) Real estate development business segment: Company's newly started area in the first half of 2021 decreased by 69% year-on-year; the completed area increased by 42% year-on-year.In early December 2021, the Central Economic Work Conference was held again to clarify that "housing is not for speculation". In addition, the company still has land reserves in key areas, it is expected that the revenue growth rate of the real estate sector in 21-23 is -10.62%/5.00%/5.00%, with gross profit margins of 20.4%, 20.3%, and 20.2% respectively;

3) Equipment Manufacturing Section: Considering the positive market demand for metallurgical equipment and prefabricated steel structures, the revenue growth rate of the equipment manufacturing sector in 21-23 is 20.00%/18.00%/16.00%, with gross profit margins of 14.00%, 14.50%, and 15.00% respectively;

4) Resource Development Section: Considering the capacity utilization of the company's three overseas mines located in Indonesia and Pakistan, and in combination with the strong demand for non-ferrous metals such as copper, nickel, cobalt, lead, zinc in the future, the sales price is expected to maintain a high level of stability. It is expected that the revenue growth rate of the resource development section in 21-23 will be 89.25%/5.29%/5.30%, with gross profit margins of 40.00%, 39.00% and 38.00% respectively.

profit side: expects the company's net profit attributable to shareholders to be RMB 9621, RMB 11.087 and RMB 12.622 billion respectively from 2021 to 2023, an increase of 22.37%, 15.23% and 13.85% year-on-year, with a three-year compound growth rate of 14.54%.

4.2. Valuation Analysis

Considering that there are significant differences in the valuations of the company's main businesses, we used the distributed valuation method to calculate the company's value and obtained a reasonable market value corresponding to 22-year performance is 105.8 billion yuan.

The company's selection process is considered and the detailed calculation is as follows:

1) Considering that the company's engineering contracting business scope covers metallurgy professional engineering, infrastructure, housing construction, and municipal government, we select China Communications Construction and China Railway, which account for a high proportion of infrastructure and municipal engineering business, as well as China Steel International, China Materials International and China Chemical, which specialize in the general contracting of specialized engineering construction such as metallurgy, cement plants, petrochemical and chemical industries, as reference;

2) Considering that the company's equipment manufacturing business has a high proportion of steel structures, we select steel structure engineering enterprises Jinggong Steel Structure, Southeast Grid Frame and Fuhuang Steel Structure as comparable companies in the industry.

3) Considering that the company's resource business's main products are nickel hydroxide, supplemented by crude copper, zinc/lead concentrate, Huayou Cobalt, Zijin Mining and Tibet Mount Everest are selected as comparable companies, and the industry's average valuation is calculated;

4) Under the divisional calculation scenario, it is expected that the net profit attributable to shareholders of four major businesses in 22 years will be 8.844, 1.118, 459, and 1.390 billion yuan, respectively, corresponding to the average valuation of the corresponding industry's 22 years will be 6.7 times PE, 5.8 times PE, 15.1 times PE and 23.6 times PE, respectively. The valuations of the above businesses in 22 years can be given 596, 65, 69, and 32.8 billion yuan, respectively. According to the distributed valuation method, the company's corresponding reasonable market value in 22 years is approximately RMB 105.8 billion.

4.3. Valuation

It is expected that the company will achieve operating income of 4849, 5531, and 620 billion yuan from 2021 to 2023, a year-on-year increase of 21.19%, 14.06%, and 12.10%, and a net profit attributable to shareholders of RMB 96.21, 11.087, and 12.622 billion yuan, a year-on-year increase of 22.37%, 15.23%, and 13.85%, corresponding to EPS of RMB 0.46, 0.53, and 0.61 yuan. The current price corresponds to PEs of 8.3, 7.2, and 6.3 times.

is calculated based on the distributed valuation method, and the 22-year performance corresponds to a reasonable market value of 105.8 billion yuan.

. Risk warning

1. The metallurgical industry's technical transformation demand and capacity replacement progress are lower than expected.

is driven by the "dual carbon" strategy. In the first three quarters of 21, the company's newly signed contracts for metallurgical projects amounted to 112.3 billion yuan, accounting for 13.8% of all new projects, an increase of 17.5% year-on-year, which forms an important support for the revenue of the engineering contracting sector. If the growth rate of fixed asset investment in the steel and nonferrous industries is weaker than expected, it may affect the company's order execution progress.

2. The growth rate of infrastructure investment is lower than expected.

In 2020, nearly 30% of the company's engineering construction business revenue consists of transportation infrastructure, ecological and environmental protection engineering, new energy construction, etc. If the growth rate of infrastructure investment is weaker than expected, it may lead to the pace of order acquisition and implementation being lower than expected.

3. Real estate regulation has exceeded expectations.

On the one hand, the company's engineering contracting sector has a large proportion of revenue, accounting for nearly 45% in 2020. If the future real estate regulation exceeds expectations, it may lead to a decline in the company's new signing of housing construction projects and revenue growth rate; on the other hand, the company's subsidiary MCC Real Estate has real estate development qualifications, and weak regulation exceeds expectations may lead to a lag in the development progress of the company's newly acquired land.

4. The growth rate of demand in the new energy industry is lower than expected, resulting in a pullback in the price of metal ores containing nickel, copper, lead, and zinc.

Driven by the high demand for downstream new energy industry, the spot settlement prices of LME nickel, copper, lead and zinc rose by 17%, 21%, 14% and 29% in 2021. The company's 21-year performance benefited from the increase in international bulk non-ferrous metal ore prices. If the growth rate of demand in downstream new energy battery industry is lower than expected, the price of metal ore may fall back, causing disturbances to the company's future performance.

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