Leading in the global copper tube industry, the copper processing business is growing steadily: Hailiang Co., Ltd. has been manufacturing copper pipes, copper bars, copper-aluminum composite conductors and other products for more than 20 years, and is the world's largest copper tube manufacturer. In 2021, the company sold 920,000 tons of copper and processed metal products, including 617,000 tons of copper pipes, accounting for more than 30% of the national market. The five-year revenue CAGR for 2017-2021 was 20%.
The copper tube industry has been deeply reshuffled, and the “leftovers” are king. On the demand side, air conditioning sales in the refrigeration industry (more than 85% of copper tube demand comes from the refrigeration industry) have reached a low point, and demand for copper pipes in various fields has expanded. On the supply side, demand in the copper tube industry bottomed out in 2020, competition in the copper tube industry intensified, small and medium-sized manufacturers left behind in production capacity, and production capacity was further concentrated on leading enterprises. The bargaining power of leading companies has increased, and the trend of higher processing fees is expected to continue for a long time.
Grab the beach and deploy copper foil production capacity to create a new growth point for performance. The company announced the construction of a copper foil production base in November 2021. In September 2022, 12,500 tons were put into operation, far ahead of the industry's 18-month average rate. The company will have a copper foil production capacity of 2.5/10/150,000 tons in 22/23/24, and will have the capacity to produce 4.5 μm copper foil. At that time, the company is expected to enter the first tier of lithium battery copper foil in China with a production capacity of 15 tons.
The copper foil business adheres to fine management genes, and cost reductions from various parties create competitive barriers. The company has been deeply involved in the copper processing business for many years, creating the advantage of fine management. Compared with domestic copper processing companies, the company's overall rate has remained low in the industry in recent years; manufacturing costs per ton have also been continuously optimized in recent years, falling from 2,495 yuan/ton in 2017 to 1,770 yuan/ton in 2021, a decrease of 29.06%. The copper foil business stands on the shoulders of the “giant” copper processing business, and the future can be expected. In addition, the company's copper foil business also has a cost advantage. In terms of raw materials, the company's production base is close to imported copper resources, and in the future, the company will produce its own copper wire; in terms of electricity prices, the company enjoys the advantage of electricity prices at the Lanzhou base, which can be about 1,600 yuan cheaper per ton of electricity; in terms of depreciation, the company uses pure domestic equipment to effectively reduce depreciation costs.
Investment advice: We expect the company to achieve net profit of 11.14/1811/2,744 billion yuan in 2022-2024, respectively, and PE corresponding to the closing price of February 17, 2023 is 21.63/13.30/8.78 respectively. In a situation where traditional business continues to gain strength and the new copper foil business provides incremental growth, there is room for definite growth in the company's future performance, and the company's rating is raised to “buy”.
Risk warning: The risk that fundraising projects will not meet expectations. The risk of depreciation of fixed assets dilution performance.
Risk of fluctuations in raw material prices and exchange rate fluctuations. The risks posed by repeated outbreaks.