\u3000\u3 Shengda Resources Co.Ltd(000603) 995 Zhejiang Yongjin Metal Technology Co.Ltd(603995) )
Core view
The company is the first echelon enterprise of stainless steel cold rolling in China, and the annual growth rate of cold rolling scale in 21-23 years may exceed 30%. The company’s products are mainly stainless steel wide cold rolling and precision cold rolling. Since its establishment in 2003, the company has been focusing on its main business. In 2020, the market share ranked third and first respectively. The essence of the company is a processing enterprise. The pricing mode is cost plus, and the profitability is relatively stable. With the release of the production capacity of projects under construction, the annual CAGR of 21-23 years may reach 30%.
Products focus on cost performance, and self-study of equipment and technology is the cornerstone. Peers generally use cold continuous rolling process to produce wide products, and imported single cold rolling process to produce precision products. The company broke the import dependence of key equipment in the single cold rolling process through equipment self-research. The self-developed single equipment is used for wide products, which makes the product quality and precision higher, and the price is higher than that of Hongwang group, which mainly focuses on continuous rolling process. Through process optimization, the investment intensity of single cold rolling process is constantly close to that of continuous rolling process. Theoretically, the gap of about 30% has been narrowed to about 10%.
Upstream resources and efficient management further consolidate the cost advantage: ① upstream resources have achieved better purchase price by setting up a joint venture with upstream leaders and building a plant close to them. For example, the purchase price of Fujian Yongjin is 50-150 yuan / ton lower than that of non Park major customers, and the payment is also granted a 7-15 day accounting period, which can effectively alleviate the capital pressure compared with the typical cash on delivery mode of the industry; ② Efficient management, through fine management, the company’s unit labor cost, power and natural gas energy consumption show a downward trend, the turnover rate of accounts receivable and inventory has accelerated significantly since 17 years, and the company’s 18-20-year revenue to cash ratio is more than 112%, showing high revenue quality and capital use efficiency.
With the rapid growth of downstream demand and the accelerated expansion of upstream production, the prospect of stainless steel cold rolling industry is better. In terms of demand, the CAGR of wide and precision apparent consumption in 17-20 years is 19% and 13% respectively, higher than the overall level of 9% of stainless steel. Driven by China’s high-end manufacturing, the improvement of residents’ quality of life and policies, the downstream demand is expected to maintain a high growth rate in the next three years; In terms of raw materials, according to the statistics of Mysteel, the new capacity of stainless steel smelting planned in China in 22-23 years is 7.18 million tons and 8.63 million tons respectively, which is significantly higher than the new capacity of 700000 tons and 1.8 million tons in 20-21 years. Cold rolling enterprises are expected to benefit.
Profit forecast and investment suggestions
We predict that the company’s earnings per share from 2021 to 2023 will be 2.48 yuan, 3.85 yuan and 5.49 yuan respectively. According to the valuation of 16 times PE of the comparable company in 2022, the corresponding target price is 61.60 yuan, and the buy rating will be given for the first time.
Risk tips
The macroeconomic growth slows down, the capacity release or digestion of the company’s new projects is less than expected, the profit level fluctuation risk of the company’s composite pipe and water pipe, and the investment of upstream smelting capacity is less than expected
