Main points of investment

Xinjiang as a vanguard of infrastructure construction, the maximum benefits of the regional market: unlike most other provinces and cities in the country, fixed assets investment in Xinjiang depends more on infrastructure investment, and because of its unique geographical advantages, the construction of many infrastructure projects in Xinjiang is more an extension of the national strategic level, so the efficiency of its projects is much higher than that of other regions. When the fiscal policy turns positive, the growth rate of fixed asset investment in Xinjiang is obviously ahead of other provinces and cities (2017 and 2020), while when the fiscal policy tends to tighten, the growth rate of fixed assets in Xinjiang obviously lags behind other provinces and cities (2018). In recent years, the central government has reduced the weight of local government GDP growth assessment, especially after the outbreak of the epidemic, more emphasis has been placed on protecting people's livelihood and employment, and local governments are not willing to promote infrastructure construction. In comparison, the fluctuation of Xinjiang solid investment growth rate is much greater than that of other provinces and cities. Once the fiscal and monetary policy turns loose, Xinjiang will benefit from the opening of the infrastructure cycle to the greatest extent.

The intensive introduction of national support policies, sufficient infrastructure projects in Xinjiang can be expected: in order to hedge the impact of the epidemic and guard against economic uncertainty, policies have been issued intensively at the national level to support infrastructure construction, and the western development strategy has been put on the agenda again. As a province with certainty of infrastructure development, the latest data show that the growth rate of solid investment has far exceeded that expected at the beginning of the year, and there are signs of accelerated release of demand for industrial products corresponding to the demand for industrial products. At the same time, there are sufficient preparations for key projects, and the sustained development of infrastructure in Xinjiang can be expected in the future. will effectively boost the demand for iron and steel, cement and other related industrial products.

Recently, there has been a second outbreak of the COVID-19 epidemic in Xinjiang, which is expected to have a certain impact on the construction rhythm of some projects in the short term. It takes less than a month from the outbreak to complete control of the second epidemic in Beijing. It is relatively difficult to track and control the epidemic in Xinjiang, so the follow-up impact on project construction, especially on key projects, is expected to be limited.

The iron and steel production capacity in Xinjiang continues to be cleared, and Baosteel will shoulder the important task of integration in the future: Xinjiang iron and steel production capacity has been effectively cleared during the 13th five-year Plan period. According to the latest strategic policy of Baowu Group, the actual controller of the company, Baosteel will take the completion of production capacity integration in Xinjiang as a key work in 2020. Under the current competition pattern of Xinjiang iron and steel industry led by Baosteel, superimposed with the support of Baowu Group, through further integration of production capacity, the steel market in Xinjiang is expected to become more orderly and stable. At the same time, the profits of steel enterprises gradually return to a reasonable level, superimposing the special regional characteristics of Xinjiang, which can effectively prevent the inflow and impact of steel products outside Xinjiang, and the steel market in Xinjiang is expected to form a regional closed loop. Leading steel enterprises will also benefit from the improvement of the competition pattern and the rebound of industry prosperity to the greatest extent.

Investment suggestion: Xinjiang, as a province with certainty of infrastructure development, will benefit most from the opening of the capital construction cycle. the latest data show that the demand has been released at an accelerated pace, at the same time, the preparatory projects are sufficient, and the continuous development of infrastructure in Xinjiang can be expected in the future. will effectively boost steel demand. From the supply side, the iron and steel production capacity in Xinjiang has been effectively cleared in recent years, and with the support of Baowu Group, Baosteel is expected to further integrate regional production capacity in the future, superimposed steel industry profits gradually return to a reasonable level, high transportation costs caused by geographical location can effectively prevent the inflow of steel outside Xinjiang, and the steel market in Xinjiang is expected to form a regional closed loop. Bayi Iron and Steel is the only steel enterprise with plate production capacity in Xinjiang, and it has differential competitiveness. At the same time, due to its own mines, the cost advantage of hot metal is large. As a leading steel enterprise, it will benefit from the rebound of industry prosperity and the improvement of regional competition pattern to the greatest extent. It is estimated that the company's net profit attributable to shareholders of listed companies from 2020 to 2022 will be 409 million yuan, 571 million yuan and 734 million yuan respectively, with a growth rate of 268%, 39% and 28% respectively.

Risk hints: the progress of infrastructure construction is not as expected; the risk of deterioration of the epidemic situation in Xinjiang; the risk of steel inflow outside Xinjiang.