Key investment points:
The moat of the chemical industry mainly comes from cost advantages (resources, processes, scale effects) and intangible assets (patents and technologies, licenses and quotas). Most chemical fine molecule industries are cyclical, and the sources of moat include resource advantages (mining, low mining cost), process and process and scale effect; A few have license sector (such as civil explosion) and quota advantage (such as fluorine chemical industry). A few sub industries have certain growth (such as electronic chemicals and other fine chemicals), and the moat is mainly from patents and technologies.
The source of cycle moat is mainly cost advantage, focusing on supply shock. For upstream resource enterprises, the moat mainly comes from the reserves and mining costs of ore, such as potassium fertilizer, phosphate fertilizer, titanium ore, salt and fluorite; For the manufacturing in the middle reaches, the moat mainly comes from the advantages of technology and scale (low unit depreciation and amortization). Supply shock is also one of the reasons for cyclical price fluctuations, so it deserves additional attention.
Growth moats are mainly from patents and technologies, focusing on demand growth. For a small number of growth enterprises such as electronic chemicals (such as necks and domestic alternative fields), the moat is mainly derived from patents and technologies, large-scale production and cost reduction capacity. Demand growth is the focus of growth industries.
Pay attention to the industry concentration, and focus on the leading companies in the subdivided industries with Cr4 40%. The industry concentration index can be used to describe the competitive structure of the industry and is also one of the manifestations of the depth of the enterprise moat (another index is ROIC). We focus on the leading companies in the subdivided industries with Cr4 40%.
Focus on new capacity. Due to the standardization characteristics of chemicals and the lag of production capacity, when the product price rises, the performance flexibility of enterprises with production capacity advantage is greater. Moreover, the expansion of production capacity in sub industries with competitive advantages can further improve the entry barriers, increase the cost of new entrants and deepen the moat.
Risk tips:
Whether a company has a moat is subjective. We may not find the moat of an industry and make the first kind of mistakes; It is also possible to mistake an industry without a moat for a moat, thus making the second kind of mistake.
The depth of a company’s moat may change over time. Some business strategies will deepen their moat, while others will weaken their moat, which needs to be treated with a dynamic perspective.
The data of capacity, output, operating rate and concentration of each subdivided chemical industry may have some deviation due to the large number of subdivided industries, different statistical caliber and data sources, but the overall conclusion will not be affected.
The chemical industry is highly professional and covers a wide range. Compared with other industries, we are more likely to miss some hidden champions in subdivided industries.
