Shareate Tools Ltd(688257) (688257)
Key investment points
China's mining cemented carbide leader has been deeply engaged in the industry for more than ten years. The company's products cover cemented carbide products, cemented carbide tools and supporting services. Its core product, mining cone bit, has reached the world advanced level, and its market sales share in China is far ahead. It has the top three sales share in overseas South America, Australia and other regions, and has entered the supply system of the top four iron ore companies, directly competing with global leaders Sandvik and atlas. The company's performance achieved rapid growth: from 2016 to 2020, the revenue CAGR = 23.35%, the net profit attributable to the parent CAGR = 36.28%, and the proportion of overseas revenue in the total revenue basically remained at about 50%. In 2021q1-q3, the company achieved a revenue of 667 million yuan (year-on-year + 26.4%) and a net profit attributable to the parent company of 102 million yuan (year-on-year + 25.3%), which maintained a rapid growth under the influence of overseas epidemic. At the same time, the sharp price rise of raw materials such as tungsten carbide was well transmitted to the downstream. The gross profit margin of 2021q1-q3 reached 37.9% (year-on-year - 1.3pct) and the net sales profit margin was 16.8% (year-on-year flat).
Cemented carbide is widely used and has a broad market space
Cemented carbide: as an industrial tooth, it is widely used in cutting, mining, construction and other fields. China is the country with the largest output of cemented carbide in the world, showing an overall growth trend in recent years. In 2020, China's output of cemented carbide will reach 41000 tons. Cemented carbide tools mainly include mining cemented carbide, cutting cemented carbide and wear-resistant cemented carbide. Shareate Tools Ltd(688257) started from mining cemented carbide. At present, it has covered the cutting and wear-resistant fields. The relevant core technologies have reached the leading level in China and occupy a high sales market share in many subdivided application fields. Cemented carbide tools for Mining: including cone bits and impactors, which are mainly used in four fields: mining, oil drilling, coal mining and capital construction. Benefiting from the overall growth trend of global resource mining, there is a broad market space. According to our calculation, the market scale of cemented carbide tools only used for copper and iron ore mining will exceed US $1.3 billion in 2020, and will increase with the annual growth of mineral mining.
Leading technology + industrial chain integration + capacity release, domestic cemented carbide leaders set sail to sea
1) Technology leadership: the company's senior executives' profound academic & industrial background has laid a technology-oriented development tone. The fist product cone bit has reached the international advanced level, with price advantage and comprehensive competitive strength leading the world.
2) Industrial chain expansion: the company gradually improves its business layout through vertical and horizontal integrated expansion of the industrial chain. ① Vertical expansion: enrich the types of new products and strengthen the service capacity at home and abroad, and strive to become a comprehensive solution provider of mining consumables; ② Horizontal expansion: accelerate the globalization strategy, lay out oil, infrastructure and other fields, and gradually expand the company's advantageous regions and fields. ③ Enter the field of cutting tools: it is proposed to acquire Zhuzhou Weikai to complete the layout in the field of NC cutting tools.
3) Capacity release: the listed funds raised solve the company's capacity bottleneck. According to the company's calculation, the new capacity is expected to contribute an average annual revenue of 820 million yuan and a net profit of 110 million yuan.
Profit forecast and investment rating: we expect the net profit of the company from 2021 to 2023 to be 148 million yuan, 238 million yuan and 314 million yuan respectively, and the corresponding dynamic PE of the current stock price is 41 / 25 / 19 times respectively. Considering the global leading competitiveness of the company's mining cemented carbide products, as well as the expansion products and cross field capacity after the release of production capacity, the company is given the "overweight" rating for the first time.
Risk tips: the downstream demand is less than expected, the overseas market is uncontrollable, the risk of raw material price fluctuation, and the synergy effect of M & A is less than expected.
