\u3000\u3000 Fushun Special Steel Co.Ltd(600399) (600399)
Event: the company released the performance forecast for 2021. It is estimated that the company will realize the net profit attributable to the parent company (RMB 728 ~ 815 million, with a year-on-year increase of 31.98% ~ 47.74%) and deduct the net profit not attributable to the parent company (RMB 643 ~ 704 million, with a year-on-year increase of 26.07% ~ 38.03%). In a single quarter, 2021q4 company realized net profit attributable to parent company (43 ~ 130 million yuan, year-on-year – 70.75% ~ – 11.56%), deducting net profit not attributable to parent company (13 ~ 74 million yuan, year-on-year – 91.45% ~ – 51.32%).
The short-term performance fluctuation is mainly due to phased factors, and the core focus is on the rhythm of production expansion: the company’s performance in the single quarter of 2021q4 has decreased significantly. According to the third quarterly report of 2021, this is mainly affected by phased factors such as the national capacity restriction policy of the steel industry, power restriction policy, rising cost of energy and raw materials and so on. In the long run, as the core card position enterprise of China’s military superalloy and high-strength steel, the company is located in the track of long-term growth of aerospace such as aeroengine, missile and military aircraft. The important thing is that the high barrier of superalloy has created a good industrial competition pattern, and will benefit from the development of military, civil aviation engine and other tracks for a long time in the future. In the medium term, especially 2022 is the first year for the expansion of production capacity of Fuzhou iron and Steel Co., Ltd. according to the 2021 semi annual report, equipment such as fast forging machine and vacuum induction furnace have been put into operation in 2022h1. With the breaking of the capacity bottleneck, the company is expected to maintain a performance growth of 30% ~ 50% in the next four years. Firmly optimistic about Fuzhou iron and steel: we have repeatedly reiterated that we are firmly optimistic about the aeroengine track, especially the deformed superalloy position leader with high barriers, scarce supply and determined pattern in the aeroengine track.
1. The “aeroengine + gas turbine” track is the best track with thick snow on the middle and long slopes in the field of military industry. It is a typical competition track with large space for long-term growth, high barriers and good pattern. The four growth logics have established a sustained and rapid growth period of more than 10 years, giving birth to a trillion level track: the mass production of major models such as ws10, the continuous iterative production of new models, the rapid opening of the maintenance market, and the acceleration of the industrialization process of commercial development. In addition, there is the continuous expansion of civil market demand such as gas turbine and nuclear power.
2. Fuzhou iron and Steel Co., Ltd. is a company with very scarce supply in the two machine track, and the market share of deformed superalloy exceeds 80%.
1) high barriers bring about a stable industrial pattern. Superalloy materials have high requirements for R & D strength and experience accumulation; Downstream aircraft launch and other products also require very high quality stability. Once they enter the user supply chain system, they are generally not easy to replace. Fushun Special Steel Co.Ltd(600399) has scientific research capability and process technology that cannot be surpassed by Chinese peers. It is an important R & D and production base for military supporting materials, and has significant scale advantages in the field of military products. High barriers create an industrial pattern characterized by oligarchy, and it is difficult to have new entrants, resulting in the long-term and high deterministic growth of Fuzhou iron and steel.
2) core card position: Fushun Special Steel Co.Ltd(600399) accounts for more than 80% of China’s aerospace deformed superalloy market and more than 95% of high-strength steel market. Having a very high market share not only proves the company’s ability, but also determines the delivery of the whole industrial chain. In other words, the orders and performance of such enterprises cannot be released, and the military industrial chain may be falsified.
3. In addition, Fugang is also the core slot enterprise of Chinese military aircraft, missiles and other racetracks. High strength steel: Fushun Special Steel Co.Ltd(600399) takes the lead in R & D and production of A100 steel and 300M steel in China. The products are widely used in key components such as aircraft landing gear, aeroengine shaft, missile and ship shell. Therefore, Fushan iron and steel is also the core supplier of “military aircraft, missile” and other products. The large-scale assembly of military aircraft and missile will also drive the continuous growth of high-strength steel demand.
Investment suggestion: Fushun Special Steel Co.Ltd(600399) is the cornerstone enterprise of China’s large-scale construction of military equipment. The three high and one special products have a high market share in high barrier fields such as aviation development, military aircraft and missiles, and are expected to be maintained for a long time, which means that embracing Fugang is embracing the high prospect of the military industry. We estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 782 million, RMB 1093 million and RMB 1651 million respectively, corresponding to the valuation of 54x, 38x and 25X, maintaining the “buy” rating.
Risk tip: the large volume of military products, the company’s production expansion process are not as expected by the market, and the prices of raw materials and energy fluctuate.
