Xiwang Special Steel: electric arc furnace, converter dual system integrated steel manufacturer, transformed and upgraded into Shandong Special Steel Manufacturing Leader Xiwang Special Steel is a leading high-end special steel producer in Shandong Province, China, and owns the steel business owned by Xiwang Group. the main assets include Shandong Xiwang Special Steel, a wholly-owned subsidiary engaged in special steel production, as well as trading Rongcheng Trading Co., Ltd. And Xiwang International Trading (Qingdao) Co., Ltd. By the end of 2015, Wang Yong, a non-executive director of the company, was the actual controller of the company.
By the end of 2015, the company has a total design steelmaking capacity of about 3.3 million tons for electric arc furnace and converter, 3 million tons for rolling line, and 2.1 million tons and 3.7 million tons for blast furnace and sintering furnace.
At present, the company has two sets of production processes: (1) using scrap as raw material to produce steel through electric arc furnace; (2) hot metal is produced by blast furnace after iron ore is converted into sinter in sinter furnace, and then steel is made by converter.
First, Pu Steel: electric arc furnace, converter dual process flexible control costs, join hands in regeneration, strategic cooperation between the Chinese Academy of Sciences and Baoxin software to help reduce costs
At present, the company has the capacity structure with electric arc furnace process and blast furnace-converter process as the core. Taking advantage of the capacity structure built by multiple production processes, the company can flexibly control the proportion of raw materials to minimize costs. The parent company Xiwang Group and China Recycling Joint Venture established China Regenerative Xiwang Energy Co., Ltd., in order to train it to become the largest scrap steel recycling and processing enterprise in Shandong Province and the national leading enterprise for scrap processing and comprehensive utilization. With the help of this platform, the company is expected to achieve internal self-sufficiency and self-sale of scrap steel; the company has signed strategic cooperation agreements with the Metal Research Institute of the Chinese Academy of Sciences and Shanghai Baoxin Software to enter the field of intelligent manufacturing. It is expected to enjoy the dividends brought by the relevant policies of state support for intelligent manufacturing, and greatly reduce the company's human resources costs.
The company actively promotes the production of the company to reduce costs and increase efficiency, and its results are obvious. According to the company's annual report, the company's ordinary steel business reached 10.11% and 20.74% in 2015 and the first half of 2016, much higher than the industry average.
Second, special steel: take advantage of the opportunity to build special steel production capacity, optimize the product portfolio to provide effective supply of the company's development strategy is to improve the product structure by increasing the output of high value-added special steel products, and flexibly adjust production decisions according to market conditions and demand, so as to increase sales revenue and improve profit margins. The proportion of special steel revenue in total steel revenue increased significantly from 7.85% in 2010 to 37.85% in 2011. From 2012 to 2015, it remained above 29%. The company mentioned in its 2015 annual report that it will increase the proportion of sales revenue of special steel with higher gross margin to 60% within three years, and the production and sales of special steel products will further increase in the future.
Third, profit forecast and investment suggestions: the company takes advantage of the capacity structure built by multiple production processes to minimize costs by flexibly controlling the proportion of raw materials. In addition, Xiwang Group and China Recycling Joint Venture to create a leader in the scrap steel processing industry to promote the reduction of raw materials. The company reached strategic cooperation with the Chinese Academy of Sciences and Baoxin Software to enter the field of intelligent manufacturing, and the company's cost reduction and efficiency action is based on the forefront of the industry. In addition, the company improves the product portfolio by increasing the output of high value-added special steel products, and flexibly adjusts production decisions according to market conditions and demand. It is expected that the company's production and sales of special steel products will further increase in the future.
The estimated EPS for 2016-2018 is 0.19,0.22,0.27, corresponding to the closing price of H shares on December 27, 2016 (HK $0.85, exchange rate 0.89512), PE for 2016-2018 is 4.01X, 3.43X and 2.80X, corresponding to the latest PB is only 0.38X, it is recommended to pay attention to.
IV. Risk hints
The risk of H-share market style is different from that of A-share market; the risk of sharp macroeconomic decline; the high dependence of raw material suppliers and the risk of substantial price increase; the process of market expansion is not as expected; the matching degree of product portfolio and market demand is lower than expected; exchange rate risk.