The company is a leading domestic graphite electrode enterprise, and its graphite electrode products have a domestic market share of 23.39% in 2020.

"double carbon" opens the demand space, and capacity approval tightens to boost the long-term high demeanor of the graphite electrode industry: electric furnace steelmaking tons of CO, emissions of only about 0.5 tons, less than 1 million tons of blast furnace steelmaking emissions, in order to effectively reduce carbon emissions in the iron and steel industry, the policy encourages the proportion of electric furnace steel to increase, and the proportion of electric furnace steel output in crude steel output is expected to reach 20% at the end of the 14th five-year Plan. It is estimated that the consumption of graphite electrodes for EAF steelmaking will grow at a compound growth rate of 18.48% from 2021 to 2025, and the industry has a broad demand space. Graphite electrode itself is a high energy-consuming industry, affected by policies such as double control of energy consumption, some provinces and cities have issued policies to restrict the examination and approval of medium-and low-end production capacity, the inflection point of the industry has gradually emerged, and the price of graphite electrode is expected to rise for a long time.

The production capacity of ultra-high power graphite electrode is concentrated and the performance release is just around the corner: Hefei carbon, Meishan Fangda and Chengdu Rongguang a total of 125000 tons of ultra-high power graphite electrode project will be gradually put into production from 2022 to 2023, and the proportion of the company's ultra-high power graphite electrode is expected to reach 67.3% in 2025. The product structure is further optimized. The company sold 67200 tons of ultra-high-power graphite electrodes in 2020, with a domestic market share of 21.65%. With the gradual commissioning of the ultra-high-power graphite electrode project, the company has a stronger say in the high-end graphite electrode market.

The gradual expansion of special graphite projects will fully benefit from the accelerated development of downstream photovoltaic and other industries: Chengdu, a subsidiary, plans a total of 30, 000 tons of special graphite projects, the first phase of the 10, 000-ton production line has been put into production, and the surplus capacity will be gradually completed and put into production. The company's isostatic graphite output is expected to reach 27000 tons in 2025, with a compound growth rate of 25% from 2021 to 2025. Benefiting from the accelerated development of downstream photovoltaic solar, semiconductor, nuclear engineering and other industries, the market demand for isostatic graphite is expected to grow rapidly in the future. We believe that with the commissioning of Chengdu carbon special graphite project, the contribution of special graphite to the company's performance will steadily increase and integrate the raw material production capacity upward, and the integrated layout will effectively iron out the risk of raw material price fluctuations. The prices of needle coke and petroleum coke, the main raw materials of stone black electrode, fluctuate greatly. in order to effectively iron out the price risk of upstream raw materials, the company has continuously distributed the raw material industry chain in recent years, in which Fushun has 200000 tons of post-coke production capacity. Fangxi Komo has a production capacity of 60, 000 tons of needle coke, and Jiangsu Fangda has a soft asphalt production capacity of 300000 tons. Converted according to the equity production capacity of needle coke and petroleum coke, the company's raw material self-sufficiency rate exceeded 60% in 2020. The company's carbon products production enterprises and raw material enterprises gradually form an industrial pattern of resource sharing and complementary advantages, which is expected to further improve the company's performance stability investment suggestions: the company's many projects under construction gradually release production capacity, the fundamentals of the graphite electrode industry are about to appear inflection point, the price of graphite electrode is expected to rise for a long time, and the company's performance release is expected. We estimate that the company's net profit from 2022 to 2024 will be 15.75 yuan 21.91 / 2.925 billion yuan, corresponding to the closing price of 6.79 yuan on August 2, 2022, and the PE for 2022-2024 will be multiple of 16-12-9, maintaining the company's "recommended" rating.

Risk hint: the development of electric furnace steelmaking is not as expected; the company's graphite electrode capacity is not as expected; the price of raw materials fluctuates greatly.