A leader in tire frame materials, it has become a major business after years of intensive cultivation. The company is a leading domestic tire frame material. The main products are bezel steel wire, steel cord and hose steel wire. The downstream products are mainly automobile tires, aircraft tires, etc.
The company has the highest domestic production of tire ring steel wire, and its leading position is stable. The company's acquisition of Shengtong in 2021 made up for the shortfall in steel cord production capacity and became a first-line supplier of steel cords. In 2022, due to factors such as macroeconomics and raw material price fluctuations, market demand was weak, and the company lost money for the first time. In 2023, the company's fundamentals were rapidly reversed. The purchase price of the main raw material wire and some energy prices fell, and Shengtong steel cord production capacity gradually recovered, and the company's net profit rebounded. In the first three quarters of 2023, the company achieved net profit of 105 million yuan to mother, an increase of 162.73% over the previous year.
Demand in the industry is picking up, and those that are strong will continue to gain strength after production capacity is cleared. Prices of raw materials in the tire frame material industry have gradually stabilized, energy prices have entered a downward channel, and pressure on the cost side of the industry has improved. As of January 5, 2024, the average spot price of φ6.5 mm ordinary high-speed wire in the country was 4,360 yuan/ton, which is basically the same as the level at the beginning of 2023. On the same day, China's commodity price index: the energy category fell to 163.4335 points, down 23.8% from the high point in 2023. Energy prices entered a downward channel, which will significantly ease the pressure on the cost side of the tire frame materials industry. Judging from the structural relationship between supply and demand, the number of cars owned by 1,000 people in China is only 214. There is still a big gap compared to developed countries such as the US, Japan, and South Korea. At the same time, tire frame materials account for about 17% of the cost of tire raw materials, and there is rigid demand, so the industry still has plenty of room for growth. Tire frame materials are developing in the direction of scale, technology and low carbonization. Low-end small production capacity is gradually being cleared, and the company is still expected to further increase its market share as an industry leader.
The multi-party deployment of green energy+overseas+new products has ushered in new opportunities for development. In recent years, the company has significantly increased the green electricity ratio of its products by building its own green energy. At present, the company has built 77MW photovoltaic power generation on the roof of the factory building. In 2022, the photovoltaic power generation capacity is 7,966 kilowatts, accounting for 9.97% of the company's total annual electricity consumption. At the same time, the company is preparing to build its own wind power plant. This plan has already been included in the “14th Five-Year Plan” energy development plan of Shandong Province. According to our estimates, if the company is approved for a 100MW wind farm, it can save more than 100 million yuan in electricity costs every year after completion. In addition, the company has developed a new special steel wire product. The cable wire launched in December 2022 has a high added value and can be used in high-performance car and aircraft tires. At the same time, the company sees the huge application potential of special steel wire and lays out special steel wire for robot dexterous hands, which is expected to enter the blue ocean circuit for humanoid robots.
Profit forecasting and investment advice. We expect the company's revenue for 2023-2025 to be $55.03/61.98/7.024 billion yuan, respectively, and net profit to mother of 1.12/1.92/358 million yuan, respectively. The current market value corresponds to the 2023 PE of 29.8X. The company's downstream growth is picking up steadily, and cost optimization in the main business has clearly boosted profits. The new superimposed special steel wire products are expected to break through new tracks such as robots and cover for the first time, giving them a “buy” rating.
Risk warning: risk of a sharp rise in raw material prices; risk of a sharp rise in energy prices; risk of falling short of expectations in macroeconomic downturn; risk of green energy projects and new products falling short of expectations.