Oriented to the two main businesses of silicon steel+power transmission and distribution equipment
The company focuses on R&D, production and marketing of oriented silicon steel and transmission, distribution and control equipment. It is the only power transmission, distribution and control equipment enterprise in the country that has opened up key upstream raw materials. It has formed a full chain product group of high-magnetic-oriented silicon steel, high-magnetic-sensitive low-loss iron cores, energy-saving power transformers, complete electrical equipment, and smart box-type substations.
Leading private-oriented silicon steel manufacturers, the high grade ratio is expected to increase. Oriented silicon steel is a key raw material for transformers. It is mainly used in transformer core manufacturing. Its superior performance directly affects the energy consumption and energy efficiency level of transformers. The company has been producing oriented silicon steel since 2016. Currently, the product performance and quality are comparable to those of large state-owned steel companies, and the output is in the top ranking (25 domestic companies producing 2023H1 have produced a total of 1.238 million tons of oriented silicon steel, and the company's output ranks among the top four in the country). The company mainly sells silicon steel products to East China, South China and Southwest China. Customers include China Electric Equipment, TBEA, Zhengtai Electric, Jinpan Technology, Shunte Electric, etc., and is also exported to Southeast Asia, the Middle East, Africa, Europe, South America, North America and other markets.
In the short term, since the decline in silicon steel-oriented prices in the first three quarters of 2023 was greater than the reduction in costs, the company's gross margin for the silicon steel sector narrowed; since 2023Q4, the price level of silicon steel-oriented silicon steel has stabilized, and prices for high-grade products have recently risen, and it is expected that the company's gross margin level can be repaired. In the long run, as energy efficiency upgrades for transformers advance, demand for generally oriented silicon steel will decrease, while demand for high-magnetic-oriented silicon steel will continue to increase. Due to high technical barriers to process window parameter control, there are few domestic enterprises that can produce high-magnetic-sensitive silicon steel, concentrated in large state-owned steel companies and a small number of private enterprises, including companies. The company's 80,000-ton high-end magnetic new material project aims to produce 085 and above grades of high-grade silicon steel. Some domestic equipment has been put into operation in 2023. It is expected that 2024Q1 will complete the installation and commissioning of key foreign equipment. It is scheduled to be fully put into operation on June 30, 2024. The 2024Q2 is trial production of high-grade oriented silicon steel. Considering that the price of oriented silicon steel products varies according to the grade of oriented silicon steel, the increase in the share of high-grade silicon steel shipments is expected to directly raise the company's gross margin level of oriented silicon steel.
Electricity transmission and distribution orders are full, and the acquisition of Yunbiantuo category+ increases production capacity
Currently, the company's power transmission, distribution and control equipment products are mainly 110KV and below transformers, 35KV and below switch cabinets and box transformers, etc. The company has established long-term stable cooperative relationships with high-quality customers such as State Grid, Southern Grid, China Railway Construction, China Power Construction, etc. In the first three quarters of 2023, the company's electricity transmission and distribution business revenue growth rate was about 57%. The company's competitive advantages in the transmission and distribution equipment sector include brand advantages (30 years of deep market experience, leading 110KV voltage level transmission and distribution control equipment company in the southwest region) and delivery/distribution advantages (short delivery cycle, 24-hour delivery guarantee with its own fleet). At present, the company's power transmission and distribution sector is full of orders. Since the beginning of 2024, it has signed a number of export project contracts, with a total amount of nearly 50 million yuan. The export products include energy-saving dry-type transformers, oil-immersed transformers, and high and low voltage intelligent switch cabinets, all over Laos, Tanzania, Sri Lanka and other countries.
The company plans to acquire 79.97% of Yunnan Transformer Electric Company's shares. The target company has a 500kV transformer production capacity, which will help expand the company's product business scale and further enhance the company's overall competitiveness. At the same time, the company's fund-raising projects still have incremental production capacity. It is expected that the company's power transmission and distribution business performance will rise steadily as production capacity increases.
Profit forecasting
It is predicted that the company's revenue for 2023-2025 will be 27.31, 39.70 billion yuan, and 5.115 billion yuan respectively, and EPS will be 0.92, 1.31, and 1.80 yuan respectively. The current stock price is 20.5, 14.4, and 10.5 times PE, respectively. I am optimistic that the company will benefit from the integrated advantages of the silicon steel+transformer industry chain. The performance is expected to rise simultaneously as production capacity increases, covering for the first time, giving a “buy” investment rating.
Risk warning
There is a risk that the demand for oriented silicon steel falls short of expectations, the risk of product price fluctuations, the risk of raw material price fluctuations, the risk that the target company is not progressing as expected, the risk that the progress of production capacity construction falls short of expectations, and the risk of increased competition.