The leading position is stable, and "double carbon" provides new opportunities

1. Metallurgical engineering "national team" with outstanding scale and technical advantages

Metallurgical technology strength is leading, and the domestic market share of large-scale metallurgical projects is 90%. According to the company's annual report, the company is the world's largest and strongest metallurgical construction contractor and metallurgical enterprise operation service provider, in the domestic market, environmental protection raw material field, coking, sintering and pelletizing, iron making, steel making and continuous casting, hot rolled flat, hot rolled long and cold rolling business fields of technical level, engineering performance, construction effect, owner satisfaction are in a leading position. In terms of market development, the company pays attention to the advantages of the whole industrial chain, can provide customers with a package of solutions, and has undertaken many large and medium-sized projects of major steel enterprises, occupying 90% of the domestic and 60% of the global metallurgical market, and has outstanding competitive advantages. Metallurgical orders, income continued to increase. Since 2016, with the deepening of the national supply-side reform, the profitability of the steel industry has greatly improved, and the capital expenditure capacity and willingness of steel companies have increased significantly. Driven by capacity reduction and replacement, the industry's large EPC orders have increased significantly, and the company's metallurgical orders have continuously achieved rapid growth since 2017. In 2022, the company signed a total of 173 billion yuan of new metallurgical orders, an increase of 9.6%, a new high since 2013. In terms of revenue, the company's metallurgical sector achieved revenue of 129.6 billion yuan in the year, an increase of 12.5%, continuing a high growth trend.

2. Under the "double carbon" goal, the demand for green and intelligent transformation of the iron and steel metallurgy industry continues to increase

Under the "double carbon" goal, the policy vigorously promotes the clean and low-carbon transformation of key industries, and the demand for transformation projects in key industries such as steel is expected to increase significantly. The Action Plan for Peaking Carbon before 2030 clearly states that "we will implement energy conservation and carbon reduction projects in key industries, promote energy conservation and carbon reduction transformation in power, steel, non-ferrous metals, building materials, petrochemical and chemical industries, and improve the efficiency of energy and resources utilization." In November 2021, ten ministries and commissions including the National Development and Reform Commission jointly issued the "14th Five-Year Plan for the Implementation of National Cleaner Production", which pointed out that to promote the "one-line and one-policy" green transformation and upgrading of key industries such as energy, steel, building materials, non-ferrous metals, petrochemical and chemical industries, and accelerate the implementation of systematic cleaner production transformation of existing enterprises and parks. Support qualified key industries to take the lead in carbon peaking. We selected 100 enterprises in key industries to carry out cleaner production transformation projects, and promoted a number of key enterprises to reach the international leading level of cleaner production. In terms of industry segmentation, the steel industry plans to complete 530 million tons of ultra-low emission transformation of steel production capacity and 460 million tons of clean production transformation of coking capacity; The non-ferrous industry completed the transformation of about 4,000 non-ferrous kilns for cleaner production; The building materials industry completed the transformation of 850 million tons of cement clinker cleaner production. Steel, nonferrous metals, petrochemical, water sludge and other industries in the follow-up clean transformation project business is expected to grow rapidly. The transformation of the steel industry into an ultra-low emission industry has generated an effective investment of 200 billion yuan. By the end of 2022, a total of 207 million tons of crude steel production capacity has completed the entire process of ultra-low emission transformation and publicity, and 480 million tons of crude steel production capacity has completed the transformation of key projects such as sintering pellets desulfurization and denitrification, and material yard closure, accounting for two-thirds of the country's total production capacity. From January to March 2023, about 40 million tons of crude steel production capacity completed the entire process of ultra-low emission transformation. According to the estimates of the Ministry of Ecology and Environment, the ultra-low emission transformation of steel has attracted a cumulative effective social investment of about 200 billion yuan, which has led to the rapid growth of environmental protection and related industries.

The Ministry of Industry and Information Technology jointly issued the Guiding Opinions on Promoting the High-quality Development of the Steel Industry to further clarify the low-carbon and intelligent development path of the steel industry. On February 7, 2022, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Ecology and Environment jointly issued the "Guiding Opinions on Promoting High-quality Development of the Steel Industry", which is an important programmatic document guiding the future development of the steel industry, with the main objectives as follows: By 2025, the iron and steel industry will basically form a high-quality development pattern with reasonable layout structure, stable resource supply, advanced technology and equipment, prominent quality brands, high intelligence level, strong global competitiveness, green, low-carbon and sustainable development. Green and low-carbon aspects: It is required to build a resource recycling system for inter-industry coupling development, complete ultra-low emission transformation of more than 80% of steel production capacity, reduce comprehensive energy consumption per ton of steel by more than 2%, reduce water resource consumption intensity by more than 10%, and ensure that carbon peaks before 2030. Intelligent and innovative: the industry R & D investment intensity strives to reach 1.5%, hydrogen metallurgy, low-carbon metallurgy, clean steel smelting, thin strip casting and rolling, headless rolling and other advanced technology breakthroughs. The CNC rate of key processes has reached about 80%, the digitalization rate of production equipment has reached 55%, and more than 30 intelligent factories have been built.

3. The company has rich reserves of green and intelligent technologies and is expected to fully benefit from the promotion of low-carbon transformation

Strong in green and low-carbon transformation technology, MCC Jingcheng won the world's first hydrogen energy development and utilization demonstration project. In recent years, the company has continued to promote the development of intelligent, green, low carbonization and high efficiency in the field of metallurgy, and has reached the international leading level in the system integration engineering technology of steel main unit and green, intelligent and other systems. The company's research and design institute reserves a number of iconic steel energy saving and emission reduction transformation technologies such as coke oven green transformation, flue gas circulation sintering, sintering waste heat utilization, and many technologies have been applied at project level. According to the company's annual report, its MCC Jingcheng won the world's first hydrogen energy development and utilization demonstration project in 2020 - Hesteel hydrogen energy development and utilization engineering demonstration project design. The project will carry out innovative research and development from the whole process of distributed green energy utilization, low-cost hydrogen production, gas purification, direct hydrogen reduction, carbon dioxide removal and deep processing, water treatment and other processes, trying to explore a low-carbon, or even "zero carbon" economy of the world's steel industry.

Hydrogen metallurgy is the core technology path to achieve low carbon near-zero emissions in the steel industry, and the development prospect is broad. China's iron and steel industry has been continuously energy-saving transformation and environmental protection investment for many years, comprehensive energy consumption per ton of steel has decreased significantly, and the national comprehensive energy consumption per ton of steel is about 539kg of standard coal in 2020, which is 6% lower than that in 2015. However, under the current process technology and equipment, the space for further reduction of energy consumption per ton of steel is limited. If the steel industry is to achieve significant carbon reduction, it will need to fundamentally change the smelting process of coal metallurgy. By replacing coal with hydrogen as a reducing agent in blast furnaces, hydrogen metallurgy can significantly reduce or even completely avoid the carbon emissions of the steel production process (the average emission of 1.8 tons of carbon dioxide in the production of 1 ton of steel under the traditional process). "Replacing coal with hydrogen" is one of the important development paths for the low-carbon transformation of the steel and iron industry, and a number of plans have been introduced at the policy end to promote its development. The guidelines on promoting the high-quality development of the steel industry, issued on February 7, mentioned that efforts should be "strengthened in the research and development and application of low-carbon smelting technologies such as hydrogen smelting, non-blast furnace ironmaking and carbon capture, utilization and storage." On March 23, the National Development and Reform Commission and the Energy Bureau jointly issued the "Medium and Long-Term Plan for the Development of Hydrogen Energy Industry (2021-2035)", positioning hydrogen energy as "an important part of the future national energy system", "an important carrier for achieving green and low-carbon transformation with energy terminals" and "strategic emerging industries and key development directions for future industries". The plan proposes to gradually explore alternative applications in the industrial field, expand the application space of clean and low hydrogen energy in the chemical industry, and carry out the research and development and application of hydrogen metallurgy technology with hydrogen as a reducing agent. Driven by the policy, the research and development process of hydrogen production, hydrogen storage, hydrogen smelting and other processes is expected to accelerate significantly, and with the continuous maturity of technology, the industry is expected to meet the rapid development period.

Ccid, a subsidiary of MCC, has researched and developed low-carbon metallurgy for more than ten years and has fully independent intellectual property rights of hydrogen metallurgy. Since 2008, CCID has carried out research on low-carbon smelting process, and has carried out a lot of technological research and development in green and low-carbon new processes and core equipment such as hydrogen injection in all-oxygen blast furnace, gas cycle, gas-based non-blast furnace ironmaking, green high-efficiency electric arc furnace steelmaking, etc., with fruitful technical achievements. In the field of hydrogen metallurgy, CCID proposed to "hydrogen energy preparation → hydrogen energy smelting →CCUS (carbon capture)" as the main line, through hydrogen rich reduction of low carbon blast furnace, hydrogen base shaft furnace direct reduction, based on efficient pre-reduction of hydrogen base melting reduction of three major technical paths, to achieve green low hydrogen metallurgy technology roadmap. Up to now, CCID has carried out a number of studies on all aspects of the hydrogen metallurgy technical route, and has mastered the completely independent intellectual property rights of China's iron and steel industry in the field of green and low hydrocarbon metallurgy technology. In October 2020, MCC CCID signed a hydrogen metallurgy strategic alliance with Tianjin Rongcheng Iron and Steel, Northeastern University and other units, committed to building the world's first hydrogen metallurgy demonstration steel plant based on tempered co-production. According to the carbon reduction roadmap formulated by CCID, it is expected that by 2030, the goal of reducing CO₂ emissions ≥35% by hydrogen-rich reduction low-carbon blast furnace and reducing CO₂ emissions ≥60% by hydrogen-based direct reduction is achieved. Zero-carbon smelting will be realized by further developing carbon capture and utilization technology (CCUS) in the future. At present, CCID has cooperated with a number of backbone iron and steel enterprises to carry out projects such as blast furnace hydrogen injection and hydrogen-based shaft furnace, and the follow-up is expected to accelerate the process of hydrogen metallurgy technology localization.

Technical strength + customer resources leading in the industry, is expected to fully benefit from the green and intelligent development of the industry. As a leader in the metallurgical process, the company has a high market share in the segment market (90% of the domestic market share of large projects), rich customer resources (serving the vast majority of steel enterprises), and outstanding technical reserves and implementation capabilities in steel energy conservation and emission reduction, upgrading and intelligent upgrading, and is expected to fully benefit from the steel industry's energy saving and consumption reduction transformation demand growth in the short term. In the long run, under the constraints of the dual-carbon goal, low-carbon smelting technology with hydrogen metallurgy, CCUS and other technologies as the core is expected to replace the traditional coal metallurgy process. The company has rich technical reserves and research and development achievements, and has won the bid for the first hydrogen energy development and utilization demonstration project, which is expected to continue to lead the development of hydrogen metallurgy industry and stabilize the leading position of metallurgical engineering.

4. Non-steel engineering: the market share of central enterprises continues to increase, and the emerging business potential is huge

The contribution ratio of non-steel plates continued to increase, and the housing construction income accounted for about 68%. In 2022, the company signed new project orders of 130.4 billion yuan, of which non-steel orders accounted for 85%, continuing to maintain a high proportion. In terms of revenue proportion, non-steel business accounts for about 76% of the total revenue of the company's engineering sector in 2022, of which housing construction/infrastructure/emerging industries account for 68.3%, 25.0% and 6.7% of non-steel business revenue respectively. In recent years, under the policy environment of strict control of new steel production capacity in China, the company has actively developed non-steel engineering fields such as housing construction, infrastructure, ecological environmental protection, new energy and cultural tourism while stabilizing the leading position of metallurgical engineering. Non-steel business has become the core growth engine of the company's engineering sector.

Housing construction, infrastructure: the market share of central enterprises continues to increase, and the advantages of investment and financing integration mode of housing construction business

The market share of central enterprises in construction accelerated, and orders are expected to continue to increase. In recent years, under the influence of many factors such as anti-corruption, replacing business tax with value-added tax, financial regulation, fluctuations in raw material prices, and the impact of the epidemic, industry concentration has continued to increase, and small enterprises with irregular operations and weak strength have gradually withdrawn from the industry. In 2023, Q1 construction central enterprise revenue accounted for 30% of the construction industry output value, which increased by nearly 9 PCTS compared with the end of 2022, and the market share acceleration trend is obvious. In the future, a number of factors are expected to accelerate the increase of leading market share: 1) the trend of large-scale projects, integration and financing will accelerate. In recent years, the types of projects such as integrated development of urban areas and large-scale industrial parks have grown rapidly. Such projects have large investment volume (more than 10 billion yuan) and comprehensive construction capacity (involving housing construction and infrastructure construction), which require high comprehensive capacity of contractors. At the same time, in the past 18 years, due to the upgrading of local governments' control by financing platforms, EPC+F, PPP, ABO and other investment and integration project models have emerged, putting higher requirements on the scale of enterprise funds. Central construction enterprises have the advantages of the whole industrial chain service, low financing costs, and various resources can better match the needs of local governments. 2) Central enterprises and other large enterprises gradually increase the scale of mining, industrial chain pricing power, in the background of rising raw materials and labor costs, the cost side of the scale advantage will be more clearly reflected. 3) Under the constraints of the double carbon target, the green technical standard of the construction industry will build a higher barrier, and the leader will have more advantages in technology, research and development, qualification and other aspects. From the perspective of orders, the company's non-steel orders from 2020 to 2022 increased by 34%/20%/11% respectively, maintaining a rapid growth rate, demonstrating the resilience of leading operations during the epidemic. The state has introduced relevant policies to encourage increased investment in urban infrastructure construction, and the subsequent market share of central enterprises has steadily increased, and the company's non-steel project orders are expected to continue to grow rapidly

The investment and integration model has the advantages of building construction business, landing a number of large-scale comprehensive engineering projects, and the potential of housing construction and infrastructure overseas business is huge. In recent years, the company has continuously deepened cooperation with strategic customers such as local governments and large enterprises, continued to innovate business models, flexibly used EPC+F, ABO, PPP and other new business models to undertake a number of urban renewal, overall development and other major engineering projects. It has successfully opened up the industrial chain of investment and financing, design, construction, operation and operation in the whole life cycle of the project or a combination of various formats. Relying on the advantages of the whole industry chain of the project, the company has won the bid for more than 10 billion large-scale projects since 2020, and its market influence continues to improve. The number of housing construction orders continues to grow rapidly, and the number of new housing construction orders signed in 2022 is 666.2 billion yuan, an increase of 9%; The housing construction sector achieved revenue of 287.4 billion yuan, a sharp increase of 26%. According to the company's annual report, in 2022, the company undertook the eco-environment-oriented development (EOD) project of Huangshi section of the Yangtze River, and in 2021, the company won the tender of the eco-environment-oriented area comprehensive development (EOD) project of Dongdao Industrial Park (Expansion Park) of Zhanjiang Economic Development Zone, with a contract amount of more than 20 billion yuan, the highest scale of the winning project in history. The EOD project model has been piloted since last year. In April this year, the Ministry of Ecology and Environment officially issued the Guide for the Storage of Ecological and Environmental Protection Financial Support Project Reserve (Trial), which requires the promotion of the planning of major ecological and environmental protection projects suitable for financial support and the construction of ecological and environmental protection financial support project reserve. Eco-oriented development (EOD) model projects are explicitly listed as support objects. The EOD model is implemented in three stages: 1) reconstruction of ecological network; 2) Overall improvement of the urban environment; 3) Industry introduction and talent introduction, the main source of project income is land premium income and industry feeding share income. EOD projects usually have a large volume and are government-led projects, and the project mode is mainly PPP, ABO, EPC+F, which requires high capital strength and comprehensive construction ability of enterprises, and most of the winning enterprises are central construction enterprises. Driven by subsequent policies, the volume of related projects is expected to increase. The company has built an integrated whole industry chain layout of project investment, financing, construction and transportation, and has significant advantages in undertaking large-scale projects such as EOD. With the continuous advancement of large-scale projects and comprehensive trends, the company's housing construction orders are expected to continue to grow steadily.