Key points of investment:

The company is a leader in high-end stainless steel pipes, and high-tech barriers help performance growth cross the cycle. The company has been deeply involved in the field of stainless steel pipes for more than 30 years, and currently has a total production capacity of about 150,000 tons/year. Industrial barriers are high in the field of stainless steel pipes, especially in the field of high-end seamless pipes, which have extremely high technology, equipment and verification thresholds. Under the first-mover advantage, years of technology accumulation have created the company's strong bargaining power. The impact of raw material fluctuations on the company's profits was significantly reduced by the company's profit: according to the company's announcement, the gross margin of seamless pipes has been stable at a high level of more than 30% since 2019, and the gross margin of welded pipes has basically been above 25% in addition to being affected by the policy in '21. It is expected that in the future, as import substitution accelerates and the proportion of high-value-added products continues to increase, the company's performance will reduce the impact of the cycle and achieve steady growth.

Downstream demand is picking up, and the oil and gas pipeline business is expected to continue to contribute to profits. According to the company's announcement, the company's downstream mainly includes oil and gas chemicals, machinery manufacturing and power equipment. Among them, the oil and gas chemical sector accounts for more than 49% of the company's revenue in recent years. In the current context of global energy shortages, oil prices have rebounded sharply, and demand for oil and gas pipelines and LNG pipes has increased markedly. At the same time, the impact of the 2021 export tax rebate cancellation policy on welded pipe profits is also gradually weakening, and the company's oil and gas pipeline profit level is expected to rise steadily.

The added value of nuclear evaporator tubes and nickel-based alloy oil well pipes is high. Against the backdrop of policy support and a recovery in industry sentiment, the company's production capacity for high-end products is expected to accelerate. Currently, the company currently has a production capacity of about 500 tons of nuclear power pipes, which has a lot of room for flexibility; at the same time, after the 5,500KM project was put into operation in '21, the production capacity of nickel-based alloy oil well pipes has also increased markedly. In the context of carbon neutrality, approval of current nuclear power projects is accelerating. At the same time, capital expenditure in the oil and gas extraction sector remains high, and import substitution accelerates the smooth expansion of overseas markets, which is expected to accelerate the release of the company's high-end production capacity. Considering that the entry threshold for high-end products is extremely high, only a few domestic manufacturers have production capacity, and the competitive pattern is stable. It is expected that the company's new production capacity can be fully consumed, and the amount of high-end production capacity will significantly increase the company's performance.

Profit forecast and valuation: During the “14th Five-Year Plan” period, major downstream demand for nuclear power, oil and gas is expected to continue to grow. Combined with the gradual release of the company's high-end production capacity, we raised the company's 2023-2024 net profit forecast to 1,426 billion yuan and 1,452 billion yuan (the original forecasts were 1,212 billion yuan and 1,354 billion yuan, respectively), and added the 2025 net profit forecast of 1,587 billion yuan. Based on the current closing price, the corresponding PE for 2023-2025 is 13 times, 13 times, and 12 times, respectively. Wujin Stainless Steel, Fushun Special Steel, and Shengde Xintai, which are similar to the company's business, were selected as comparable companies. The average PE in 23 years was 22 times higher than that of Jiuli Special Materials 13 times PE in 23, so it maintained a “buy” rating.

Risk warning: Prices of raw materials have risen sharply, affecting product sales; downstream demand falls short of expectations.