Focus this week: Zhengzhou Coal Mining Machinery Group Co.Ltd(601717) , Tiandi Science & Technology Co.Ltd(600582) , Warom Technology Incorporated Company(603855) , Dajin Heavy Industry Co.Ltd(002487)
Core view of this week: the short-term impact of recent macro environment fluctuations has not been eliminated, and the overall judgment still continues the fluctuation trend. At present, the price rise of upstream resource products and the steady growth of the government are still two relatively determined main lines, and the relevant equipment sectors such as coal machinery, oil service, nuclear power and hydrogen energy are expected to benefit.
Cemented carbide tools are widely used and are the main tools of machine tool digitization. Cutting tool is a tool used for machining in mechanical manufacturing. It is a basic industry in mechanical manufacturing and major base areas. It accounts for about 90% of the total machining workload, which directly determines the production level of mechanical manufacturing industry. According to the material, metal cutting tools can be further divided into cemented carbide tools, high-speed steel tools, ceramic tools, superhard tools and so on. In fact, there are many kinds of materials suitable for NC tools, but from the perspective of performance and application range, cemented carbide has the advantages of high hardness, wear resistance and toughness. It has a wider range of applications and is the main tool for digital manufacturing.
Demand side: the recovery of machine tool industry + the improvement of NC rate, driving the recovery of tool industry. From 2017 to 2019, affected by the slowdown of macroeconomic growth, especially the decline in the prosperity of automobile and consumer electronics industries, China’s machine tool market experienced a decline for three consecutive years. In the first half of 2020, with the effective control of the epidemic, China’s manufacturing industry recovered rapidly and the machine tool industry rebounded, which is expected to drive the recovery of the cutting tool industry. On the other hand, according to the data of the National Bureau of statistics, in the past decade, the NC rate of China’s metal cutting machine tools has increased from 25.8% in 2012 to 44.9% in 2021. The continuous improvement of CNC rate of machine tools is expected to drive the vigorous development of cemented carbide. According to our calculation, assuming that the proportion of cemented carbide in tool consumption increases by 1.5% every year, the market scale of cemented carbide tools will increase by 150 million yuan, 650 million yuan and 1.16 billion yuan respectively under the three scenarios of year-on-year decrease of 2%, year-on-year balance and year-on-year increase of 2% in 2022.
Domestic substitution: transformation and upgrading of manufacturing industry + “epidemic dividend” “In this context, domestic substitution has accelerated. The scale of China’s cutting tool market has experienced a decline from 2012 to 2016, but at the same time, it has brought about the increase of advanced production capacity. With the transformation and upgrading of the manufacturing industry and the encouragement and support of national policies, Chinese cutting tool enterprises continue to make efforts to the medium and high-end market. Since 2017, China’s dependence on cutting tool import has decreased year by year. In 2020, although the epidemic has led to the decline of the global economy, The interruption of some industrial supply chains has also won time for domestic substitution, and the recognition of Chinese products by downstream users has been continuously improved. According to the data of China Machine Tool Industry Association, China Customs and forward looking Industry Research Institute, the total consumption of China’s cutting tools in 2021 was about 43.6 billion yuan, the consumption of imported cutting tools was 10.632 billion yuan, and the dependence on imports decreased to 24.39%, This has significantly reduced the import dependence of 36% compared with 2016. According to our calculation, the current market size of cemented carbide tools occupied by Japan and South Korea is about 2.1 billion yuan. Assuming that the market share of Japanese and South Korean tool brands in China will drop to 500 million yuan in the next three years, and domestic tool brands will replace the rest of their market share in 20222024, it is expected to replace the market share of 533 million yuan of Japanese and South Korean tools every year, with a total market share of 1.6 billion yuan.
Supply side: enterprises are scrambling to expand production and are expected to release an output value of 540 million. According to our sorting of the output and expansion plans of the four head companies China Tungsten And Hightech Materials Co.Ltd(000657) , Xiamen Tungsten Co.Ltd(600549) , Oke Precision Cutting Tools Co.Ltd(688308) , Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) , it is estimated that the total capacity of the four companies will increase by about 63 million pieces in 2022. According to the 70% market share of the four companies and the price of each piece is 6 yuan, the scale corresponding to the new production capacity at the supply end of cemented carbide NC blades in the whole industry in 2022 is 540 million yuan. On the whole, if China’s tool consumption in 2022 shrinks compared with that in 2021, the supply and demand balance of cemented carbide NC blades will be basically maintained (the demand is slightly greater than the supply). If China’s tool consumption is flat or slightly increased year-on-year, there will be an obvious pattern of supply exceeding demand.
Investment suggestion: it is suggested to pay attention to Chinese CNC blade head enterprises Oke Precision Cutting Tools Co.Ltd(688308) , Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) , etc.
Risk tips: the risk of intensified industry competition, macroeconomic risk, raw material price fluctuation risk, technology upgrading iteration risk, etc.
