Investment advice
We believe that under the background of the increasing willingness of downstream middle and high-end customers to try domestic tools, Chinese cemented carbide tool enterprises are ushering in a period of rapid growth with the support of the capital market. This round of capacity expansion is expected to create “volume and price rise” growth, and give a “buy” rating for the first time. It is suggested to pay attention to Chinese head cemented carbide tool enterprises Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) , Oke Precision Cutting Tools Co.Ltd(688308) and China Tungsten And Hightech Materials Co.Ltd(000657) .
Industry perspective
Why domestic substitution is now: after more than 60 years of development, the gap between the overall technical strength of China’s cemented carbide tool enterprises and the international level is narrowing, and the tool performance of head enterprises has not fallen behind in a considerable number of fields. At the same time, the “domestic production equipment” does not exist, and the “domestic production equipment” does not exist at the same time. Under the dual challenges of trade friction and epidemic situation, in order to ensure the safety of supply chain, high-end manufacturing fields such as aerospace and military industry began to actively try domestic knives, creating a golden era of domestic substitution. Taking Zhuzhou Diamond as an example, it successfully won the general contracting project of AVIC Chengfei cutting tools in 2021, which shows that Chinese enterprises have the ability to solve the problem that the processing of key aerospace parts completely depends on imported cutting tools.
At present, Chinese enterprises are different from overseas enterprises in product types, sales channels and application fields. Product types: the full range layout of cutting tools in Europe, America, Japan and South Korea. Chinese enterprises mainly focus on turning and milling blades, and are enriching product types.
Sales channels: Sandvik direct sales account for more than 60%, providing targeted solutions for customers. Japanese, Korean and Chinese enterprises mainly focus on distribution channels.
Application fields: Europe, America, Japan and South Korea have more applications for medium and high-end customers in mature industries such as automobile, construction machinery, energy and shipbuilding; In addition to the high proportion of Zhuzhou Diamond in the field of automobile for a long time, China is dominated by general machinery and mold industries, and the proportion of medium and high-end fields is relatively low.
In this round of production expansion, domestic enterprises expand tool categories, strengthen the construction of direct sales channels and layout to medium and high-end fields. In addition to quantity, the growth of the dimension of price is worthy of attention: at present, the product price of Chinese cemented carbide tool enterprises is far behind that of Japanese, Korean and European and American enterprises. According to our industrial chain research data, at present, the price of turning blades of Chinese enterprises is about 60% of that of Japan and South Korea and 30% of that of Europe and America; The price of milling blades is about 45% of that of Japan and South Korea and 15% of that of Europe and the United States. According to the import and export data, the import unit price of cemented carbide coated blades in 2021 is nearly four times that of exports. Considering that Chinese enterprises are carrying out a round of capacity expansion, while increasing the output of NC blades, they are also expanding to the field of non-standard and special-shaped blades, and adding products such as cermet blades and integral cemented carbide tools, it is expected that the average price of NC blades is expected to continue to increase. Specifically, the average price of CNC blades of Zhuzhou Diamond in 2021 is estimated to be 10 yuan / piece, and the price of some blades of the newly built aerospace production line can be as high as 60 yuan / piece Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) in 2021, the average price is 5.87 yuan / piece. In the first year after the new production capacity is put into operation, the average price of cemented carbide and cermet CNC blades will be 9.86 yuan / piece and 9.2 yuan / piece respectively Oke Precision Cutting Tools Co.Ltd(688308) in 2021, the average price was 5.9 yuan / piece. In 2021, 2000 kinds of CNC blade products were newly developed, and the price was more than 10 yuan, accounting for more than 40%. We believe that the current round of production expansion of Chinese enterprises is expected to create a growth of “both volume and price”.
Risk tips
The progress of domestic substitution is less than expected, the average price increase of NC blades is less than expected, the capacity expansion is less than expected, the risk of shareholder reduction and the risk of lifting the ban on restricted shares.
