\u3000\u30 Jinzai Food Group Co.Ltd(003000) 35 Hunan Zhongke Electric Co.Ltd(300035) )
Investment logic
Magnetoelectric material veterans, cathode accelerated growth Hunan Zhongke Electric Co.Ltd(300035) was established in 2004. It is a veteran enterprise in China’s electromagnetic industry. In 2017, the company acquired Xingcheng graphite and began the strategic layout of lithium battery cathode materials; From 2017 to 2019, gradually integrate the lithium battery negative electrode industry chain, empower Xingcheng graphite through its own platform and industrial chain advantages, and accelerate the growth of negative electrode business.
The negative pole competes for cost reduction and integration is the king. The medium and long-term competition pattern of negative electrode is the focus. We believe that the product premium in the medium and high-end field of negative electrode will still be maintained and it is difficult to break through. At the end of 2022, with the graphitization self supply rate of head negative electrode manufacturers increasing significantly (the self supply rate basically reached more than 70%), it will be more difficult for new entrants. After the head integration is completed, it will compete in multiple dimensions around the differences between large-scale & R & D accumulation & customer structure & graphitization process. Those with high-quality product structure, capacity scale advantages and high-quality customer structure will still maintain the leading position in the industry.
Accelerate integration & bind customers and smoothly check the front line. In terms of integration, the company is expected to form 225000 tons of graphitization capacity corresponding to 277000 tons of negative electrode capacity from the end of 22 to the beginning of 23. The capacity scale and self supply rate of graphitization are compared with the first-line leaders in the industry (more than 70%) and the layout of upstream petroleum coke raw materials. In terms of customers, the company has established joint ventures with Eve Energy Co.Ltd(300014) , Contemporary Amperex Technology Co.Limited(300750) to provide channel guarantee for the released production capacity. In terms of graphitization process, the company has a synergistic advantage with the existing magnetoelectric equipment, and the self-developed equipment further reduces power consumption and cost. In terms of product R & D, Xingcheng graphite is an old negative electrode enterprise with profound negative electrode graphite technology, and the product structure is expected to be optimized.
The leading position of magnetoelectric equipment is stable. In the field of magnetoelectric equipment, the company has established stable and smooth business relations with most iron and steel enterprises and large metallurgical engineering contractors in China. The market share of special equipment for electromagnetic metallurgy exceeds 60%, which is in the leading position in the industry. The company’s revenue is expected to maintain a scale of more than 200 million.
Investment advice and valuation
Binding high-quality customers – integration continues to reduce costs, the company’s share in the negative field is expected to further increase, and the magnetoelectric equipment business is developing steadily. We estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 360 million, RMB 760 million and RMB 1.24 billion respectively, corresponding to EPS of RMB 0.56, RMB 1.18 and RMB 1.92, corresponding to PE of 37.6, 20 and 12.3 times, giving the company a valuation of 25 times in 22 years, corresponding to the target price of RMB 30. It will be covered for the first time and given a “buy” rating.
Risk
Lower than expected risks in downstream demand, deterioration of industrial competition pattern, lower than expected risks in company capacity construction, lower than expected risks in new customer expansion, lifting of restricted shares, pledge of shareholders and reduction of shareholders’ holdings.
