\u3000\u30 Shenzhen Quanxinhao Co.Ltd(000007) 78 Xinxing Ductile Iron Pipes Co.Ltd(000778) )
In 2022, we must pay attention to the investment opportunities of water network lines: from the performance of mainstream intelligent water meter companies exceeding expectations in 2019 to the full swing and high performance increase of water informatization industry in 2021, in the process of tracking water network lines, we have paid attention to the phenomenon of product category expansion and investment expansion of intelligent water meter companies and water informatization (intelligent water company) in the industry from bottom to top, It is observed that water companies have strong demands for intelligent transformation; On December 14, 2021, at the central economic work conference, the general secretary of Xi Jinping pointed out that during the 14th Five Year Plan period, pipeline reconstruction and construction must be taken as an important infrastructure project; This also means that the logic of top-down China’s pipe network transformation is clear.
The growth rate of fixed asset investment in China’s water pipe network has accelerated, and the era of intelligent transformation of water pipe network has come: according to the data in the urban statistical yearbook of the Ministry of housing and urban rural development, the annual fixed asset investment in China’s water supply and drainage construction has far exceeded the fixed asset investment in water supply construction. In 2020, the fixed asset investment in China’s drainage construction reached 376.62 billion yuan, a year-on-year increase of 33.6%, Among them, the investment in urban drainage fixed assets was the largest, reaching 211.48 billion yuan, accounting for 56% of the country; In 2020, China’s fixed asset investment in water supply construction was 157.55 billion yuan, a year-on-year increase of 14.6%.
Company profile: nodular cast iron pipe ranks first in the world and grows steadily under underestimated value: the company is the largest manufacturer of centrifugal nodular cast iron pipe, steel grating and casting products in the world. Under the background of the large-scale transformation of the national water pipe network, the nodular cast iron pipe of the company’s main product used in the water pipe network is expected to usher in high growth. By the end of 2020, the annual output of cast pipes in the world is about 9 million tons, of which the annual output of centrifugal nodular cast iron pipes is about 8.5 million tons, accounting for more than 90% of the output of cast pipes; By the end of 2020, the company has produced 2.9555 million tons of cast pipes, pipe fittings and castings. The production scale of steel grating ranks first in the world. The production and sales of cast products and steel plastic composite pipes rank first in China. It is the largest nodular cast iron pipe manufacturer in China and maintains a significant competitive advantage in the industry.
Ductile iron pipe has become the preferred pipe for water supply in China. At the same time, more and more ductile iron casting products have been developed and applied to the drainage pipe network system. The water supply pipes in use in China are mainly divided into three categories: metal, non-metal and composite pipes. Nodular cast iron pipes are preferred for the main road water supply pipes. At the drainage end, considering the cost and material properties, the traditional pipes are mostly reinforced concrete pipes, plastic pipes or the mainstream direction of drainage pipes.
Profit forecast and investment rating: we expect the company’s operating revenue to be 57.388 billion yuan, 70.086 billion yuan and 86.299 billion yuan from 2021 to 2023, with a year-on-year increase of 33.6%, 22.1% and 23.1%; The net profit attributable to the parent company was 2.320 billion yuan, 2.823 billion yuan and 3.565 billion yuan respectively, with a year-on-year increase of 28.0%, 21.7% and 26.3%; EPS is 0.58 yuan, 0.71 yuan and 0.89 yuan respectively, and the corresponding PE is 8, 7 and 5 times. Considering that the company is the largest nodular cast iron pipe manufacturer in China + large investment in water pipe network during the 14th Five Year Plan period, it was covered for the first time and was rated as “buy”.
Risk warning: the risk that the investment in fixed assets of China’s water pipeline network is less than expected; Risks of macroeconomic downturn; The risk of sharp rise in the price of raw materials; Risks of stricter environmental protection policies, etc
