\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 399 Fushun Special Steel Co.Ltd(600399) )
Fushun Special Steel Co.Ltd(600399) there are many reasons for this year’s adjustment: the performance of 21q4 and 22q1 is expected to be poor, and then worry about: 1) the impact of the price rise of nickel and electricity; 2) Whether the price increase can be unobstructed and so on. The core reason is that in the weak market, although the long-term growth logic remains unchanged, there is uncertainty in the short-term performance, resulting in continuous adjustment. However, we believe that the Hangfa track is the track with the longest slope and thick snow in the military industry, and Fushan iron and Steel Co., Ltd. is still the core card position enterprise with extremely high barriers and stable pattern in the Hangfa materials. According to the company’s official and micro, the company has reduced costs and increased efficiency by using measures such as returning steel from inventory, strengthening power control and increasing yield. Therefore, we think that the core consideration now is the time point of re layout. We can see that in February, Fuzhou iron and Steel Co., Ltd. has achieved practical results through low energy consumption and low-cost production and operation. The sharp rise in the price of raw materials such as nickel is short-term, but the improvement of management level, process optimization and yield is long-term, and the long-term value is still prominent.
First, the negative factors are gradually clear, and more measures are taken to reduce costs and improve efficiency.
1) price of raw materials: the sharp rise in the price of nickel in the short term has caused excessive concern in the market, resulting in excessive feedback. Nickel is used in the company’s high-temperature alloy, stainless steel and other products, which can be transmitted by civil products. At present, there are also price increase measures for military products. In the medium and long term, we expect that the prices of nickel, cobalt, molybdenum and other alloy raw materials will eventually fall, and the short-term rise in nickel prices will not affect the long-term fundamentals; In addition, in order to cope with the rise of raw material prices, Fuzhou iron and Steel Co., Ltd. used more inventory returned steel, tried its best to efficiently recover the high price main elements such as chromium, nickel, cobalt and molybdenum in the returned steel, digested the backlog returned steel, and recovered more than 10000 tons of class II returned steel in February 2022.
2) electricity charges: according to the 2020 annual report, fuel power accounts for 13.9%, which has a relatively small impact on the total cost. Based on the 20% increase in electricity charges, together with energy-saving measures and the use of green electricity, it is expected that the increase in electricity charges will only affect the cost of tens of millions. In addition, in order to cope with the rise of energy prices, Fuzhou iron and steel continued to strengthen the control of power consumption and avoid “peak” and “Valley” power consumption. In February 2022, the comprehensive power consumption of Fuzhou iron and steel decreased by 1.34% year-on-year and the total energy expenditure decreased by 5.1% month on month.
3) price increase: according to our steel network and steel enterprise network, Fuzhou iron and Steel Co., Ltd. has put forward price increase notices twice on January 24 and March 18, 2022. First price increase notice: for the orders of class a steel products received from February 1, 2022, the price of products with alloy element content of nickel + cobalt ≥ 5% shall be increased by no less than 10%; The price of other products will be raised by no less than 5%. Second price increase notice: for the contract orders received from 0:00 on March 18, 2022, on the basis of the base price on March 17, for all varieties of special steel products, the price will be increased by 200, 400 and 500 yuan / ton for each 1% molybdenum, vanadium and nickel. We expect that with the gradual implementation of the price increase, the probability is that the whole industrial chain of aviation development will jointly bear the rise of raw material prices. Refer to the annual report of Guizhou Aviation Technical Development Co.Ltd(688239) 2021: the price of international raw materials has gradually increased to varying degrees, and the delivery cycle has also been extended; Chinese raw material suppliers also have strong expectations of rising in the near future. Therefore, the company may face the realistic pressure of rising prices of main raw materials in 2022.
4) improve the yield: the company improves the yield by adjusting the process route (optimizing ingot shape, reducing steel head and tail loss, reducing finishing loss, etc.). In February 2022, on the one hand, the compliance rate of ingot and billet selection and planning of the company reached 100%; On the other hand, by optimizing the electroslag smelting process and reducing the cutting amount of finished products, the company has increased the yield of finished products of electroslag ingots by 1.64% compared with the average level in 2021.
5) scale effect: in 2022, with the launch of new production capacity and the increase of equipment, the scale effect after batch production will appear rapidly.
Second, the long-term logic has not changed. This year, the quarter on quarter profit is more deterministic.
1) in the long run, the demand for superalloys is strong and still in short supply; High barriers and competition pattern will not change; The basic price of long-term growth is highly deterministic. On the demand side, the attribute of aero-engine consumables + start of maintenance market + long-term commercial development and gas turbine provide a larger market, and Fuzhou iron and Steel Co., Ltd. is also expected to enter the scientific research and supply system of commercial development; On the supply side, the supply of superalloys needs two steps. After completing the scientific research verification process and batch supply, the former has a long time cycle, while the latter has high requirements for quality stability and yield. We believe that the dominant position of Fuzhou iron and steel in military superalloys and high-strength steel during the 14th five year plan will not change. Now the core problem is the production capacity. In short, in the long run, the core competitiveness of Fuzhou iron and steel has not changed, and its card position advantage is still significant.
2) performance: with the gradual completion of price increasing orders and the gradual release of 2022q3 production, the performance of this year is still highly deterministic month on month. In particular, it is expected that the performance of capacity release will increase significantly in 2023, and the valuation in 2023 is very attractive.
Investment suggestion: Fushun Special Steel Co.Ltd(600399) is the cornerstone enterprise of China’s large-scale construction of military equipment. Three high and one special products have a high market share in high barrier fields such as aviation development, military aircraft and missiles, which is expected to be maintained for a long time, which means that embracing Fuzhou iron and steel is embracing the high vision of the military industry. We expect the net profit attributable to the parent company from 2021 to 2023 to be RMB 782 million, RMB 1003 million and RMB 1518 million respectively, corresponding to the valuation of 35x, 27x and 18x, maintaining the “buy” rating.
Risk tip: the company’s production expansion process can’t wait for market expectations and fluctuations in raw material and energy prices
