\u3000\u3000 Zhejiang Yongjin Metal Technology Co.Ltd(603995) (603995)
On January 18, the company released the annual performance forecast for 2021: it is expected to realize the net profit attributable to the parent company of RMB 575 million to RMB 615 million in 2021, with a year-on-year increase of 38.74% to 48.39%; The net profit attributable to the parent company after deducting non-profit was RMB 550 million to RMB 590 million, with a year-on-year increase of 45.17% to 55.72%. According to this calculation, the net profit attributable to the parent company will reach 139 million yuan to 179 million yuan in 2021q4, with a month on month ratio of q3-8.51% to 17.86%; The net profit deducted from non parent company was 132 million yuan to 172 million yuan, a month on month increase of q3-10.23% to 17.07%, slightly higher than our expectation.
Steady progress in business in the fourth quarter: the second production line of Zhejiang Yongjin precision cold rolled stainless steel production line with an annual processing capacity of 125000 tons has been installed and commissioned and put into trial production by the end of October; Guangdong Yongjin phase II wide width cold rolling project with an annual processing capacity of 320000 tons entered the equipment installation period, and the phase III wide width cold rolling stainless steel project with an annual processing capacity of 350000 tons started construction in October; Vietnam Yongjin project entered the equipment installation period, and Thailand Yongjin project completed land acquisition; Praseodymium Seiko’s high-speed metal composite production line was successfully put into trial production in December; The steady progress of the above projects and the release of the output of existing projects are expected to increase the annual output by more than 40% year-on-year in 2021; With the successful issuance of the company’s convertible bonds in December, the follow-up construction of Zhejiang Yongjin phase II relocation project is expected to be successfully completed by the end of 22;
Firmly optimistic about Yongjin: we continue to be optimistic about the stainless steel processing track, especially the precision cold rolled sector leader with high growth, broad market space and improved product structure.
The stainless steel processing industry is in the pattern of “high-end manufacturing + rapid development”: the “14th five year plan” for the development of raw material industry clearly points out that 1-2 professional pilot enterprises should be cultivated in the fields of stainless steel, special steel, seamless steel pipe and cast pipe respectively; Stainless steel is between ordinary carbon steel and special steel, which has the dual characteristics of broad market space and high added value. It has an obvious substitution trend for traditional ordinary carbon steel; With the rapid expansion of upstream smelting enterprises such as Qingshan and TISCO, the supporting processing field will usher in a period of rapid development;
Attach great importance to the company’s rapid growth characteristics and the resulting valuation premium: on the Chinese side, the company announced in November 2021 that it plans to invest in the project of 220000 tons of precision stainless steel sector and strip processing per year (Gansu Yongjin). The project is the first inland production base outside the company’s eastern coastal production base. The implementation of the cooperative project with Jiuquan Iron and steel is conducive to increasing the company’s sales radius, Improve overall profitability; Overseas, in January 2022, the company announced that it would cooperate with Qingshan group in Indonesia Yongjin project and plan to invest in the construction of 700000 tons of wide stainless steel cold-rolled strip project. In addition to the 250000 tons of wide stainless steel cold-rolled strip project in Vietnam Yongjin (trial production is expected in March) and 260000 tons of precision stainless steel strip project in Thailand Yongjin, the share of the company’s products in the overseas market is expected to be further improved; It is preliminarily estimated that, excluding the Yongjin project in Indonesia, the CAGR of the company’s cold-rolled sheet and strip output from 21 to 23 years is expected to reach 31.81%;
There is a vast market space in the field of cold-rolled stainless steel processing: according to the capacity expansion progress of the existing company, the company’s design capacity is expected to exceed 3 million tons by the end of 2023, and the overall market share in China’s cold-rolled stainless steel market is still less than 15%. The high increase in capacity in the past three years shows the expansion ability of the company’s low-cost and high turnover mode, The low market share provides a broad space for further growth of production capacity in the future;
Further increase the proportion of high margin products: among the new projects invested and constructed by the company, the proportion of production capacity of high margin products such as precision sectors has increased significantly, so as to further enhance the profitability of the company. Without taking into account the production capacity of stainless steel water pipes and layered composite materials, the proportion of production capacity of high margin products of the company is expected to increase from 13.33% in 2020 to 26.11% in 2023;
Investment suggestion: the company focuses on the stainless steel cold rolled sector processing industry. Self developed equipment, high turnover and precision share increase create competitive advantages. The substantial growth of production capacity and the high certainty of downstream demand give the company long-term growth momentum. It is expected that the company’s business scale and profit realization are expected to enter the stage of rapid growth, It is estimated that the net profit attributable to the parent company in 2021, 2022 and 2023 will be 583 million / 861 million / 1181 million respectively, and the corresponding EPS will be 2.5 yuan / 3.69 yuan / 5.07 yuan. According to the closing price of 57.23 yuan on January 17, the PE of the company in 2021, 2022 and 2023 will be 22.88/15.5/11.3 times, and the “buy” rating will continue to be given.
Risk tip: due to the price change of upstream stainless steel raw materials and the rapid increase of production capacity, the cost increases more than expected, and the demand for stainless steel sectors is less than expected
