Focus on the second growth curve of traditional industries
Today (December 15, 2021), the traditional industries represented by power, coal and steel are rising ahead. We are in the annual strategy "victory in the end" It is mentioned that the revaluation of traditional industries is far from over, because the roe and ROIC of industries in the 2021 cycle have broken through the long-term trend. Under the high dividend and higher average price level, it is expected to continue to rise in 2022. Since 2016, a large number of enterprises that have achieved breakthroughs in roe and ROIC trends have been repaired by long-term valuation. This year's upward commodity prices have led the market to revise its understanding of the importance of traditional cyclical industries. The recent central economic work conference also pointed out the irreplaceable position of traditional industries in the economy; Looking ahead, although the extreme contraction on the supply side has improved, it will help the market reasonably price the future sustainable profitability of traditional industries, and cyclical stocks may outperform commodities.
Expectation of periodic market: from distribution of stock profit to acquisition of incremental profit
The obvious feature of 2021 is that profits in the industrial chain are distributed to the upstream: because the contraction of upstream supply is rigid, while downstream demand begins to weaken after May, the middle and downstream cannot conduct price transmission. However, this pattern is expected to change in 2022. The central economic work conference proposed to "focus on economic construction" and "appropriately carry out advanced infrastructure". Combined with the previous statements of the central bank, we believe that under the tone of "wide credit" and "stable growth" in 2022, the total demand will recover, and the middle and downstream industries will stabilize "volume", so as to improve the total asset turnover rate, The upstream still maintains its high gross profit margin, and incremental profits appear in the whole industrial chain instead of the zero sum game between the upstream and downstream. The supply pattern of the upper and middle reaches will be reversed by energy transformation in the long term. Therefore, we believe that under the current stock price level, investors can buy based on industrial logic and wait for the recovery of downstream demand.
Pay attention to power shortage and response
The vulnerability of the power system in 2022 is still worthy of attention: considering the growth of GDP, the decline of unit energy consumption and the increase of the proportion of electricity to the total energy consumption, the power demand may maintain a growth of more than 7%. Under the condition that the nuclear increased capacity of coal and imported coal are fulfilled as expected, the supply still requires high growth of wind power, photovoltaic power generation and hydropower, which depend on the climate. It is expected that this will bring two kinds of opportunities: first, the requirements of the whole power system for consumption capacity and allocation capacity will be improved, and the corresponding infrastructure construction, including UHV, smart grid and energy storage, will usher in opportunities. Traditional power enterprises will benefit from the reform of distribution mechanism; Second, as the supply bottleneck of energy next year, electricity will make the price of bulk commodities rise due to the role of both supply and demand, thus improving the profitability of traditional cycle industries.
Spring agitation is not important, cycle and electricity are important
As proposed in our annual outlook, it is precisely because we believe in the inflationary bull market in 2022, so we don't have to expect too much about "spring agitation". The central economic work conference proposed that "the implementation of 'double carbon' should be flexible and appropriate", which is actually the fulfillment rather than the beginning of the "deviation correction expectation" since September; Monetary easing also started earlier than the second quarter. What we should wait for now is the effectiveness of credit easing, the clear bottom of the economy and the disturbance of overseas interest rate hikes. As we have mentioned many times before, during the "stagflation bull" period of US stocks in the 1970s, The market situation of cyclical industries is also realized in the process of supply shock abating (after the sharp rise of commodity prices in 1973-1974) and U.S. economic recovery. Transformation is the joint force of old and new driving forces, and the capacity revaluation of traditional industries is still the biggest expected difference in 2022. Currently, the recommended layout: steel, coal, nonferrous metals (aluminum, copper), electric power, UHV and power distribution.
Risk tips:
The implementation of carbon neutralization policy is lower than expected; The implementation of the steady growth policy was lower than expected.
