\u3000\u3 Shengda Resources Co.Ltd(000603) 995 Zhejiang Yongjin Metal Technology Co.Ltd(603995) )
The company is a leading enterprise in the field of stainless steel sector and strip processing in China. In 2020, the market shares of precision cold-rolled stainless steel sector and strip and wide cold-rolled stainless steel sector and strip were about 17% and 11% respectively. With the relocation project of Zhejiang headquarters, the IPO raised investment project in Jiangsu, and the stainless steel cold rolling project in Guangdong, Gansu and overseas Vietnam, Thailand, Indonesia and other places gradually completed and put into operation, the leading position of the company will be more stable.
The release of upstream smelting capacity + the steady growth of downstream demand, and the supply and demand pattern of cold-rolled stainless steel processing industry is improving. There are many stainless steel smelting projects planned in China and Indonesia. It is estimated that 13.54 million tons of stainless steel smelting capacity will be completed and put into operation in the next 2-3 years, and there are sufficient sources of raw materials for cold-rolled stainless steel processing. On the demand side, benefiting from the upgrading of traditional consumption fields and the growth of emerging fields, the demand growth rate of wide and precision cold-rolled stainless steel is much higher than the overall demand growth rate of stainless steel. We predict that the demand CAGR of wide cold rolling will reach 10.72% and that of precision cold rolling will reach 7.20% from 2021 to 2025, and the supply and demand pattern of cold-rolled stainless steel processing industry will gradually improve.
Several projects have been constructed and put into operation in an orderly manner. It is estimated that the CAGR of the company’s cold-rolled stainless steel output will reach 21.43% from 2021 to 2025. Several stainless steel cold rolling projects of the company (7 in China and 3 abroad) are under orderly construction and put into operation. It is expected that the output of cold rolled stainless steel of the company will increase to 4.625 million tons in 2025, and the CAGR will reach 21.43% from 2021 to 2025. In terms of precision cold-rolled stainless steel, the 125000 ton relocation project of Zhejiang headquarters has been put into trial production in December 2021. With the full production of Jiangsu Yongjin IPO project in May 2022 and the 195000 ton convertible bond investment project put into operation at the end of 2022, the company’s precision stainless steel output will reach 265000 tons in 2025, and the market share is expected to further increase. In terms of wide width cold-rolled stainless steel, with the gradual construction and operation of Chinese projects such as Guangdong, Jiangsu and Gansu and overseas projects in Vietnam, Thailand and Indonesia, the company’s output of wide width cold-rolled stainless steel will reach 4.36 million tons in 2025 and 21.37% CAGR from 2021 to 2025. The scale effect of the company will gradually appear, driving high performance growth.
Close to the raw material enterprises, the layout of production capacity + self-developed production equipment has obvious product cost advantages. The two production bases of Yongjin in Fujian and Yongjin in Guangdong are adjacent to raw material production enterprises. While the purchase price is preferential, it can shorten the raw material purchase cycle and reduce the capital occupation of raw material inventory. In addition, the company has always focused on scientific and technological innovation and the improvement of R & D capacity. Compared with imported equipment, the relevant input cost of 20 roll reversible precision cold rolling mill and other equipment independently designed and developed by the company can be reduced by 30-40%, effectively reducing the cost of maintenance, depreciation and so on.
The high turnover rate drives the company’s roe level at a relatively high level. The company’s main production base is close to the upstream hot rolling plant, with a short procurement cycle and a fast production cycle. The superposition company mainly adopts the sales mode of payment to delivery. The company’s accounts receivable and inventory turnover rate are much higher than those of comparable companies. Although the company’s gross profit margin is lower than that of comparable companies, the company’s roe level is relatively high due to its fast production process and sales settlement mode.
Investment suggestion: the company is the leader in the precision cold-rolled stainless steel sector and strip industry. With the gradual production of several projects, the company’s performance is expected to accelerate the release. We estimate that the net profit attributable to the parent company from 2022 to 2024 will be RMB 828 / 1197 / 1641 million respectively, corresponding to the closing price of RMB 48.64 on April 15, 2022, and the PE will be 14 / 9 / 7 times from 2022 to 2024, maintaining the “recommended” rating of the company.
Risk warning: the commissioning process of the project is not as expected; Cold rolled stainless steel demand is less than expected; The price of raw materials fluctuated sharply.
