Introduction to this report:
The company is a leading domestic ferrosilicon enterprise. Coal resources bring cost advantages. At the bottom of the cycle, the company's operating cash flow is sufficient and performance is supported. If demand in the ferrosilicon and PVC resin industry picks up, the company's performance will be more flexible.
Key points of investment:
Covered for the first time, the company was given an “increase in weight” rating. The company is a leading domestic enterprise for comprehensive utilization of ferrosilicon, cashmere clothing and coal. We estimate that the company's net profit for 2023-2025 will be 31.48 billion yuan, 33.56 billion yuan, and 3.643 billion yuan respectively, corresponding to EPS of 1.12, 1.2, and 1.3 yuan respectively. Refer to similar companies and give the company a valuation of 1.6 times PB in 2024, corresponding to a target price of 13.74 yuan. Covered for the first time, the company was given an “increase in weight” rating.
Ferrosilicon faucet, leading the industry in cost. The company has a production capacity of 1.5 million tons of ferrosilicon, with a domestic market share of about 25%, and is a leader in the domestic ferrosilicon industry. Of the cost of ferrosilicon, 60-70% is electricity. The company has its own power plant, leading the industry in energy costs. The company's main product in the chemical sector is PVC resin, and about 50% of its cost is electricity. The company also has a cost advantage in the chemical sector. Furthermore, the Ordos brand has obvious advantages in the clothing sector, and the sector is operating smoothly.
The ferrosilicon and PVC industry is at the bottom of the cycle. Since 2021, as the industry continues to expand production, oversupply in the ferrosilicon industry has begun to become prominent. In 2023, the industry's capacity utilization rate declined markedly, prices and profits declined, and the industry entered the bottom of the cycle. From a price and supply perspective, the PVC industry is also at the bottom of the cycle. The company has a cost advantage and can support the profits of the ferrosilicon and PVC resin sector. If demand picks up, the company's performance is more flexible.
Pay attention to the certainty of performance brought about by coal resources. The market believes that Ordos's main business is ferrosilicon and PVC resins. The downstream fluctuates greatly with the real estate cycle, and performance uncertainty is high. However, we believe that the company's coal resources bring a cost advantage; the company's large capital expenditure may have ended; declining debt and falling period expenses have led to an increase in profitability, and the dividend rate has gradually increased, making the company's investment value outstanding.
Risk warning: The prices of ferrosilicon and PVC have dropped sharply; the price of coal has dropped sharply.