\u3000\u3000 Citic Pacific Special Steel Group Co.Ltd(000708) (000708)
Core view
The world’s leading specialized special steel enterprise has initially formed a strategic layout of coastal and riverside industrial chains. Citic Pacific Special Steel Group Co.Ltd(000708) it has a steel production capacity of more than 15 million tons, with a revenue of 74.7 billion yuan in 2020, of which alloy steel bars contribute nearly half of the gross profit. In 2019, the Citic Pacific Special Steel Group Co.Ltd(000708) assets will be listed as a whole, and the final actual controller is the Ministry of finance.
The overall steady growth of downstream demand is expected to reshape enterprise valuation. The application industries of Citic Pacific Special Steel Group Co.Ltd(000708) products account for automobile (34%), machinery (27%), energy (19%), bearing (14%), etc. (1) Automobile: after the epidemic, China’s automobile sales rebounded as a whole, and the market share of high-end automobile brands continued to expand. (2) Wind power: China’s wind power installed capacity may maintain steady growth during the 14th Five Year Plan period. (3) Energy and chemical pipelines: the construction of fossil energy pipelines may increase slightly in the short term, and the demand for steel for chemical plants may increase. The steady growth of the overall downstream demand has driven the sales of the company’s automotive steel, bearing steel, energy steel and other products, which is expected to reshape the enterprise valuation.
Expand the growth boundary: (1) develop the “three high and one special” military industry chain upward: comply with the development prospects of high-end manufacturing, national defense and aerospace industries, and build a new “three high and one special” production capacity of 92000 tons / year by Citic Pacific Special Steel Group Co.Ltd(000708) 2024, twice the scale in 2020. (2) There is room for merger and reorganization downward: the company has rich experience in extension acquisition, “one acquisition, one success”; It is planned to achieve an annual output of 20 million tons by the end of the 14th five year plan. At present, there is still room for capacity improvement of nearly 5 million tons / year.
Moat barrier: both profitability and scale growth, and product strength supports market position. (1) Leading position: a leading medium and high-end special steel enterprise with scale advantages all over the world. (2) Strong product power: the advantages of production capacity and quality help the company to lead the market share of high-end products, and build a high barrier for product iteration rate. In 2020, the average output rate of new products of key steel mills will be 16.9%, Citic Pacific Special Steel Group Co.Ltd(000708) 31.9%, and the R & D achievements will continue to be transformed into the core competitiveness of quality and capacity. (3) Customer recognition: the product premium rate is significant, and the cost transfer and bargaining power are strong, which makes its pricing model similar to the cost plus. Benefiting from the high-end customer system, Citic Pacific Special Steel Group Co.Ltd(000708) enjoys a brand premium rate of 10% – 20%.
Profit forecast and investment suggestions
Maintain the company’s buy rating, with a target price of 31.62 yuan. Due to the expected fluctuations in the price of steel, iron ore, coke and other raw materials in the future, we adjusted the company’s EPS to 1.55 yuan / 1.86 yuan / 2.04 yuan from 2021 to 2023 (1.57 yuan / 1.89 yuan / 2.01 yuan from 2021 to 2023). According to the valuation of 17 times PE of comparable companies in 2022, the target price is 31.62 yuan, maintaining the buy rating.
Risk tips
Macroeconomic growth slowed. The progress of industrial and enterprise structure transformation and upgrading was lower than expected. The development speed of special steel downstream industry is lower than expected.
