Fangda Carbon New Material Co.Ltd(600516) (600516)
Industry barriers are obvious, and the kinetic energy for the future expansion of graphite electrode is insufficient. On the one hand, the graphite electrode industry is a high energy consuming industry, and the production of a single ton of ultra-high power graphite electrode consumes about 1.17t standard coal. On the other hand, the production process of ultra-high power graphite electrode is cumbersome and complex, and the graphite electrode production enterprise needs to have a capacity of at least 50000 tons to be competitive in the industry. The investment cost of a single ton of graphite electrode is about 200 million yuan, It takes about 1 billion yuan to build a capacity of this scale, so it is difficult for the graphite electrode industry to have new enterprises. In addition, under the background of increasingly strict dual control of energy consumption, all provinces and cities strictly control the capacity expansion of high-energy consumption industries, and it is difficult for the original enterprises in the industry to have capacity expansion. In the next few years, the graphite electrode industry will lack the momentum to expand production.
“Double carbon” is urgent, and the graphite electrode industry welcomes the historic development opportunity. The steel industry is the category with the highest carbon emission in China’s manufacturing industry. In 2020, the CO2 emission is about 18.64t, accounting for 18.84% of the total national emission. In order to ensure the smooth realization of the “double carbon” goal, the carbon emission reduction of the steel industry is urgent. Compared with the traditional “long process”, the “short process” electric furnace steelmaking has great advantages in carbon emission reduction. The carbon emission reduction under all scrap steel reaches 48%. The Ministry of industry and information technology pointed out in the guidance that the output of electric furnace steel will account for 20% by the end of 2025. It is estimated that the output of electric furnace steel in China will reach 241 million tons in 2025, and the demand for graphite electrode for electric furnace steelmaking will be about 601500 tons. It is estimated that there will be a supply-demand gap of 43800 tons of graphite electrode in 2022, and the price of graphite electrode is expected to enter the upward channel.
Plateau material self-sufficiency superimposes significant scale advantages, and the company firmly grasps the product pricing power. Fangda Carbon New Material Co.Ltd(600516) is the leader in China’s graphite electrode industry, The company has a graphite electrode production capacity of 295000 tons (equity production capacity of 223600 tons), and graphite electrode production bases are distributed in northwest, southwest and Northeast China. The company extends the industrial chain upstream through endogenous extension, and has a production capacity of 260000 tons of high-quality calcined coke and needle coke (equity production capacity of 151000 tons) and the self-sufficiency rate of raw materials is as high as 67.80%. Through leading technology and supporting high-quality raw materials, the quality of the company’s graphite electrode products has reached the international advanced level, and the production capacity is sufficient. The product supply capacity ranks first in China’s Graphite electrode industry. Under the background that the current iron and steel enterprises attach great importance to the product supply capacity, the company can firmly grasp the product pricing power.
Investment suggestion: as a leading enterprise of graphite electrode in China, the company will fully benefit from the capacity replacement opportunity in the iron and steel industry brought by the “double carbon” policy. With the production of 50000 tons of graphite electrode capacity projects of Chengdu Rongguang and Hefei carbon, the company will further improve the voice of the industry. We estimate that the company’s net profit attributable to the parent company from 2021 to 2023 will be RMB 1.100 billion, RMB 2.243 billion and RMB 3.706 billion respectively, corresponding to EPS of RMB 0.29, RMB 0.59 and RMB 0.97 respectively, and corresponding PE of 41.3, 20.3 and 12.3 times respectively. The company will be given a “buy” rating for the first time.
Risk tip: the capacity construction did not meet expectations, the impact of dual control of energy consumption exceeded expectations, and the price of graphite electrode was lower than expected.
