Baosheng Media Group Holdings Limited Q2 FY2023 earnings call

• Industry Landscape: The steel industry was in a downturn. CISA member companies had a 45% loss rate, and the total profit of the ferrous metal smelting and rolling industry decreased by -97.6% year-on-year. Baosteel's profit ranked first at about RMB6.52 billion. • Measures Implemented: Adopted cost reduction and efficiency improvement measures. For example, RMB2.99 billion of costs were reduced in the first half of the year, achieving 102% of the annual target. Energy consumption contributed over RMB0.7 billion, and variable costs were reduced by RMB1.63 billion. Deepened the integration of production, sales, and research. This included continuously deepening six reforms in procurement, optimizing the product structure in sales and R&D, and setting up technical working stations in key markets. • Projects and Strategies: Officially signed a contract with Saudi Aramco and PIF to build the world's first green analog carbon process thick plate factory. Focused on overseas market expansion, with a target of 6 million tons of total exports. Planned to reshape the competitiveness of auto sheets, expand the production of high-end products such as 500,000 tons of non-oriented and new energy silicon steel. Focused on smart manufacturing, low carbon, and environmental protection, with targets like 100% reaching the industry's energy consumption benchmark and achieving zero internal waste water emission. • ESG Performance: Maintained the highest credit rating in the global steel industry. Among China's ESG-listed companies, it ranked 4th in the comprehensive ranking and 1st in the manufacturing industry, and was selected in the first global sustainability yearbook 2023 and recognized as a Best Progressive Enterprise in the industry.

In the first half of 2023, Baosteel achieved a revenue of approximately RMB170.2 billion, with a net profit attributable to the parent company of ¥4.55 billion. The cash flow from operating activities (excluding the finance company) was ¥11.31 billion, EBITDA was ¥17.12 billion, EPS was ¥0.2, and ROE was 2.32%. The profit reduction was mainly due to the decline in steel sales prices. In the first half, a cost reduction of RMB2.99 billion was realized, reaching 102% of the annual target. Energy consumption contributed over RMB0.7 billion, variable costs were reduced by RMB1.63 billion. The revenue contribution details for specific product segments are not explicitly broken down further in the transcript, but the overall financial performance is as described above.

• Downstream Demand: It was believed that the demands of industries such as the auto, shipbuilding, and home appliances were normal or still booming, while the demands of real estate, infrastructure, and construction machinery were weak. • Annual Production: The total crude steel production was expected to remain unchanged or slightly decrease compared to the previous year. • Next Year's Targets: Aimed to be the number one in industry profitability and per-ton steel profitability. Deepened the transformation of production, sales, and research, focused on the differentiated product strategy, continued to reduce costs (with an annual cost reduction target of RMB4 billion, focusing on the liquid iron cost), reshaped the competitiveness of auto sheets, expanded the overseas market size (with a total export target of 6 million tons), and ensured the profitability of Baosteel's manufacturing base in the second half and throughout the year.

• Market Downturn: The steel industry was in a slump, and the price reduction affected profits. • Overseas Investment Risks: Challenges existed in overseas investment, including risk management, talent pool construction, and training for overseas operations. • Carbon Market Impact: Incorporation into the national carbon transaction market posed challenges, as traditional heavy-asset furnaces required significant investment and a long transformation period for carbon reduction. • Supply and Demand Imbalance: China's steel industry faced an oversupply issue, and potential output reduction policies affected production and market dynamics.

Q: What are the future overseas expansion goals in terms of timetable, countries to focus on, and considerations regarding acquiring excellent assets?

A: The Saudi Arabia project is being promoted, with the focus on building the world's first green low-carbon fixed plate steel project. It focused on Belt and Road countries with green and low-carbon assets. Considered M&A for upstream and downstream integration but would be cautious in decision-making.

Q: Regarding the management system, are there any changes related to the operation center and why?

A: The 'one company, multiple bases' is an ongoing task. The operation center is for dynamically optimizing resource allocation to minimize the decision-making process, ensure continuous and efficient production, and share resources among bases to minimize inventory and accelerate capital turnover.

Q: How to ensure good auditing results and quality to manage risks?

A: Enhanced the financial management system, had a capable finance team, used standardized accounting work, a perfected internal control system, internal audit focusing on internal control effectiveness, and selected qualified external auditing firms to ensure authentic and realistic accounting information.

Q: How is the 80 million tons capacity goal for 2024 being developed?

A: Due to national requirements for high-quality development and industry reorganization and M&A promotion, as a flagship company, Baosteel shouldered responsibilities. It had accumulated advantages in talents, technology, and M&A experience, and was seeking suitable opportunities internally and externally for capacity expansion.

Q: What is the impact of the steel industry being incorporated into the national carbon transaction market and the company's preparations?

A: Carbon reduction was important but challenging. Closely followed national policies, conducted research, prepared for carbon reporting, promoted low-carbon technologies, invested in green energy, and had done preparations such as the implementation of the low-carbon methodology in the Jinjiang base and the construction of electric furnaces.

Q: What is the perspective on supply and demand after September and the impact on Baosteel?

A: China's steel industry would continue to reduce capacity. Baosteel strictly followed government requirements, was market and demand-driven, accepted profitable orders to arrange production pace, and was proactive in cooperating with local governments for capacity quota.

Q: The reasons for the decline in silicon steel prices, the forecast, and the company's planning?

A: The price decline was due to oversupply in the mid and low specifications as many companies invested in silicon steel production. Baosteel's strategy was to be the world's number one in silicon steel, focusing on premium high-end oriented products, with plans for production expansion such as the increase in oriented silicon steel capacity and the operation of new production lines.

Q: What are the top steel products with the highest profitability and their rankings?

A: For large product types, silicon steel was number one, followed by auto steel, thick steel, and steel pipelines. However, there were differences in profitability among products within the types.

Q: What are the future plans for profitable steel products such as new energy steel and silicon steel?

A: For silicon steel, continued to focus on high-end products, optimized the product structure, and implemented production expansion plans. For auto steel, reshaped competitiveness, met customer needs in various aspects. For thick steel, fully developed the current production line and focused on domestic and foreign markets.