It has a long history and is a model of independent innovation of China's high-end equipment: founded in 1954, the company is one of the 53 important state-owned backbone enterprises managed by the central government involving national security and the lifeline of the national economy. to provide major complete sets of technical equipment and services for iron and steel, electric power, energy, petrochemical, national defense and other industries. The company has the manufacturing capacity of full coverage of nuclear power equipment in the first loop of the nuclear island. it is the largest supplier of hydrogenation reactors for oil refining in the world and the whole process equipment supplier of metallurgical enterprises. The company has created hundreds of "firsts" in its history, which is a model of independent innovation of high-end equipment in our country.
China has entered the era of large-scale refining and chemical industry, the petrochemical investment has been reversed periodically: there is a significant structural imbalance in China's refining and chemical industry, with excess refined oil and insufficient self-sufficiency of chemical products. When the oil price runs in the high range of 60-80 US dollars per barrel, petrochemical enterprises have a better profit level, and capital expenditure has entered a new round of expansion cycle. China's policy to promote the "three barrels of oil" and private enterprises to promote industrial upgrading through refining and chemical integration, the scale of investment is expected to reach 1.1 trillion by 2025.
Petrochemical equipment as an important profit contribution point, along with the refining cycle, profitability is expected to be further improved.
Nuclear reaction pressure vessel leader, active layout of the fourth generation nuclear power technology: the commercial operation of the first four AP1000 units is approaching, and the Shidao Bay CAP1400 demonstration unit is expected to open the approval window for nuclear power units after it is approved this year. In the short term, the third-generation technology represented by the AP series and Hualong-1 will continue to promote construction; in the long run, the fourth-generation reactor with independent core technology in China will gradually move from the experimental reactor to the demonstration reactor stage. The company is an absolute leader in the field of nuclear reaction pressure vessels, and also has a competitive advantage in the field of other main equipment and forgings on the nuclear island; in addition, the company actively arranges the fourth-generation nuclear power technology to lay the foundation for maintaining a leading position in the field of nuclear power equipment for a long time.
Steel production capacity replacement at the right time, driving the demand for medium-and high-end metallurgical equipment: the current global steel and non-ferrous smelting capacity has been transferred from incremental to stock demand; the market is dominated by the elimination and replacement of backward production capacity, as well as energy saving, consumption reduction, technological transformation and upgrading. The metallurgical equipment industry has entered a transitional period from manufacturing to manufacturing and technical transformation services, and enterprises with weak comprehensive capacity will be gradually eliminated. Since the supply-side reform, the profits of steel enterprises have generally improved, but the environmental protection policy is still strict, and capacity replacement is the main driving force of the current demand for metallurgical equipment. The company occupies a core position in the domestic metallurgical equipment industry and will continue to benefit from the increase in demand for medium and high-end metallurgical equipment after capacity replacement and concentration of steel production capacity.
Downstream economic recovery, internal deepening reform, entering a new stage of value reengineering: on the one hand, the company's main downstream industries are in the stage of economic recovery, with significant improvements in order volume, cash flow, profitability and so on. On the other hand, since taking office, Chairman Liu Mingzhong has taken the three system reforms as the core and breakthrough point to promote the reform of labor employment, enterprise personnel and salary distribution, and integrate the internal formation of the four major business sectors so as to deepen the reform of the whole company in an all-round way. Improve quality and efficiency within the company, clear inefficient production capacity, with the "state-owned enterprise reform two hundred action" Dongfeng, the company as a leader in the high-end heavy equipment industry, the performance will return to the rising channel and enter a new stage of value reengineering.
Investment suggestion: we predict that the company's operating income from 2018 to 2020 will be 10.3 billion yuan, 12.5 billion yuan and 15.8 billion yuan respectively, and the net profit will be 280 million yuan, 690 million yuan and 1.115 billion yuan respectively. Considering the position and importance of the company in China's high-end heavy equipment manufacturing industry, the main business bottomed out and rebounded and profitability improved, focusing on internal reform, the quality of operation continued to improve, according to the valuation level of the company and industry, raise the company's rating to "Buy-A".
Risk hints: large fluctuations in international oil prices will affect the profitability of refining and chemical enterprises; the investment progress of refining and chemical integration projects is not as expected; the replacement of iron and steel capacity is less than expected, resulting in a decline in the procurement demand for metallurgical equipment; nuclear power approval restart progress is not as expected; raw material price fluctuations affect the profitability of enterprises.
