The stainless steel tube faucet is positioned as high-end to build a core competitive advantage. The company is a leading manufacturer of stainless steel pipes for industrial use in China. In the downstream application field of products, petroleum, chemical and natural gas account for a high share of revenue and gross margin, and the share of revenue and gross margin of seamless pipes in terms of process is high. In the future, the company will continue to increase the revenue share of high-end products (high-end products such as oil well pipes & nuclear power evaporator U-tubes in the petrochemical and gas industry). The company is leading in equipment and technology, and has broken foreign monopolies with many products. The company's production capacity is increasing steadily year by year, the production and sales rate remains high, and the operation is steady. As of 2023Q3, the company's revenue was 6.154 billion yuan (+29.33% YoY), and net profit to mother was 1,108 billion yuan (+26.25% YoY). Benefiting from high-end products, global layout and localized substitution, the company will consolidate its leading position, and future performance growth can be expected.

Enrich the product line and actively lay out the upstream stainless steel pipe industry chain. The company continues to develop high-end products. In '22, the price of seamless pipes and welded pipe tons was +8% and +21% year-on-year, and product prices rose steadily. By optimizing the product structure and resisting the risk of fluctuations in raw material prices, the company achieved a year-on-year increase in gross profit per ton, and the effect of high-end products was remarkable. The company is actively moving upstream in the stainless steel pipe industry chain, holding 7.15% of Yongxing Material's shares (the company's important raw material supplier), holding 68.5% of the alloy company's shares (high-quality special alloy new materials), and 70% of Jiuli Materials (stainless steel wire, stainless steel welding wire, etc.).

High-end products: High-end oil well pipes are becoming globalized, and the international market share is expected to increase. In the face of harsh corrosive environments in oil and gas extraction, the development and application of nickel-based alloys has received attention. The company is one of the few major suppliers of high-end oil well pipes in China. The current production capacity includes projects with an annual output of 3,000 tons, as well as 5,500 KM precision pipe projects for nuclear power, semiconductors, medical instruments, etc. It is expected that as the company's high-end oil well pipes move towards globalization, the company's international market share is expected to increase? High-end products: U-shaped heat transfer tubes for steam generators with double oligopoly heads, fully enjoying the dividends of the industry. During the “14th Five-Year Plan” period, China is expected to maintain the pace of approval and commencement of 6-8 or even 10 nuclear power units per year, and the upstream nuclear power industry will usher in new development opportunities. The company has a layout in the direction of nuclear third-generation, fourth-generation nuclear, and nuclear fusion, and has taken the lead in localizing many nuclear power products. In the three generations of nuclear power, the company is the only manufacturer that can supply U-shaped heat transfer tubes for nuclear steam generators, with a production capacity of 50,000 tons and a certain amount of flexible space. The company is expected to fully enjoy the dividends of speeding up the pace of nuclear power approval. In terms of nuclear generation 4 and nuclear fusion, the company has a product layout to seize the first-mover advantage.

Profit forecast and investment advice: The company's revenue for 23-25 is estimated at 78.45 billion yuan, 102.28 billion yuan, and 11.340 billion yuan, respectively, and net profit to mother is 15.28, 16.00, and 1,779 billion yuan, respectively. The corresponding PE is 12.8/12.2/11.0 times, respectively. Based on comparable company conditions, PE valuation was used, and the valuation was 16 times over 24 years, corresponding to a market value of 24.448 billion yuan, and a target price of 25.02 yuan was given. First coverage, giving a “buy” rating.

Risk warning: Risk of policy changes; risk of exchange rate fluctuations; risk of downstream demand falling short of expectations; risk of overseas business expansion falling short of expectations; risk that public data used in research reports may be delayed or not updated in a timely manner.