\u3000\u3 Shengda Resources Co.Ltd(000603) 995 Zhejiang Yongjin Metal Technology Co.Ltd(603995) )
Core highlights: the company is the leader and the only listed company of precision stainless steel cold rolled sheet in China. It has self-developed production equipment and more than ten years of technical patent reserves, and has accumulated long-term competitive advantages; The company adopts the order production mode, and its production capacity has doubled in two years. At the same time, it actively arranges high gross profit production lines and overseas production capacity, and improves its long-term profitability in a multi pronged manner, becoming one of the core targets of the high growth processing track;
Stainless steel cold rolling is a fully competitive industry with low gross profit and high turnover. The company takes the lead in the industry in terms of cost, channel and efficiency. At present, China’s stainless steel cold rolling market is decentralized and fully competitive. The basic characteristics of low gross profit and high turnover have led to the rapid development of private enterprises. As a representative enterprise of single machine cold rolling, Yongjin has significant competitive advantages: (1) cost: compared with the imported equipment commonly used by Chinese enterprises, Yongjin’s self-developed equipment production line has the characteristics of low cost and high efficiency, On the one hand, the high yield brought by man-machine matching reduces the processing cost of a single ton. On the other hand, with the support of self-developed technology, the realization cost of customer customization demand is lower; (2) Channel: the company has in-depth cooperation with Qingshan group, the main upstream supplier. A series of cooperation such as jointly building Fujian Yongjin, acquiring qingtuo Shangke and jointly building Indonesia Yongjin are deepening. The order production mode basically offsets the risk of price fluctuation of upstream and downstream products. The degree of cooperation between the company and China’s mainstream hot rolling manufacturers such as TISCO and Jiuquan Iron and steel is also strengthening, and the upstream and downstream integrated channel is expanded to improve the sales capacity. (3) Efficiency: compared with industrial enterprises, Yongjin has higher turnover rate and stronger cost control ability, and is significantly ahead in revenue growth, capital turnover rate, inventory turnover rate and business cycle;
Capacity expansion has entered a leap forward period, actively layout high gross profit production lines and overseas capacity, and improve long-term profitability. According to the production capacity progress of the projects under construction currently publicized, the compound growth rate of the production capacity under construction from 2021 to 2023 is 51.5%, and the three-year compound growth rate of the warehousing output is 37.4%; The company actively arranges the high gross profit production line. The proportion of high gross profit products such as precision sector, 400 series wide sector, stainless steel water pipe and composite products is expected to increase from 13.3% in 2020 to 27.6% in 2023, driving the company’s gross profit margin from 5.04% in 2020 to 5.83% in 2023; On the basis of Chinese business, the company has accelerated the layout of overseas production capacity, successively invested and built stainless steel projects in Vietnam, Thailand and Indonesia, and expanded its sales channels to Southeast Asia, European and American markets, which is expected to further improve the profitability of the company;
Investment advice. The company focuses on the cold rolling processing of stainless steel and occupies an advantage in the competition of mainstream products. Relying on the channels of many leading stainless steel hot rolling enterprises, the company rapidly expands its production capacity. Its order production mode, high production capacity growth and product structure transformation will effectively support its profit release. The scarcity, high growth and broad market space are expected to support its higher valuation. We expect that the net profit attributable to the parent company from 2021 to 2023 will be RMB 590 million, RMB 870 million and RMB 1.28 billion respectively, corresponding to 22.2, 15.3 and 10.4 times of PE. For the first time, give a “buy” rating;
Risk tip: the sharp fluctuation of upstream raw material price and the rapid increase of production capacity lead to the unexpected decline of processing fee, the demand for stainless steel sector is less than expected, and there is uncertainty in the development of new business.
