Key points of investment

Jiuli Special Materials was founded in 1987 and specializes in the development and production of industrial stainless steel and special alloy pipes, bars, wires, bimetallic composite pipes, pipe fittings, etc. The company's development is oriented towards high-end products and market globalization. In 2006, the company's 3,500-ton steel extruder production line was put into operation. The company used this as an opportunity to vigorously promote the localization process of imported products and firmly establish the “long, special, excellent, high, refined and advanced” product characteristics. In 2009, the company was listed on the Shenzhen Stock Exchange. In the same year, the company's medium and large diameter continuous forming stainless steel welded pipe production line was put into operation, the stainless steel pipe/welded pipe obtained a civil nuclear safety equipment manufacturing license, a titanium precision welded pipe project with an annual output of 1000 tons was put into operation, and the first nickel alloy oil casing successfully went down the well. The company made significant progress in developing high-end products. In 2023, the company established a subsidiary “Jiuli Europe” and successfully acquired German EBK through Jiuli Europe to further improve its overseas market layout.

As a leading domestic stainless steel pipe company, the company's performance is expected to maintain rapid growth mainly due to three aspects:

1) High-end product: Breaking through technical barriers, products move to high-end, and the revenue share of high value-added products continues to increase. The company attaches great importance to R&D investment, improving production processes, optimizing product structure, promoting product transformation and upgrading, breaking through many core key technologies, filling gaps in many domestic stainless steel pipe fields, breaking the foreign monopoly pattern, and replacing nine products “first”. Looking at the share of high-end product revenue, in 2020, the company's high-end product revenue accounted for 16%. In 2023, the company's high-end product revenue was about 1.9 billion yuan, accounting for about 22% of the company's revenue. The company's high-end products in the oil and gas sector include nickel-based corrosion-resistant alloy oil well pipes, large-diameter thick-walled stainless steel welded pipes for oil and gas transportation, etc. High-end products in the field of power equipment include U-shaped tubes for nuclear power evaporators, etc., and demand for high-end products is booming.

2) Market globalization: The company competes with the world's leading companies on the same stage in the global market to accelerate the increase in global market share through product exports and acquisition of high-quality overseas targets. The company's products are exported to more than 70 countries and regions, and overseas business is an important component of the company's revenue. In 2023, the company actively exploited overseas middle and high-end markets. Overseas revenue was 2,945 billion yuan, an increase of 84% over the previous year, and the share of revenue increased to 34%. In 2023, the company acquired German EBK to accelerate overseas market expansion. In September 2023, the company issued the “Notice Concerning the Signing of a Pipeline Steel Pipe Supply Contract with the Wholly-Owned Sun Company”. EBK successfully signed a contract with Abu Dhabi National Petroleum Corporation for the supply of pipeline steel pipes with a total length of about 92 kilometers, with a total price of about 592 million euros (about 4.6 billion yuan) including tax.

3) New business layout: Based on technological and industrial scale advantages, the company continues to invest in R&D, broaden product lines and business areas, and form new performance growth points. The company's 2023 annual report reclassified product categories. On the basis of the previous four categories of “seamless pipes,” “welded pipes,” “fittings,” and “other” products, “composite pipes” and “alloy materials” products were newly divided. The composite pipe and alloy material business cultivated by the company over many years ushered in a period of development. In 2023, the company's revenue for composite pipes and alloy products was 331 million yuan and 391 million yuan respectively, up 368% and 108% year-on-year respectively. Businesses such as composite pipes and alloy materials are developing well.

We expect the company's net profit from 2024-2026 to be 1,614 billion yuan, 1,869 billion yuan, and 2,083 billion yuan, corresponding to the current PE stock price valuation of 15, 13, and 12 times, respectively, to maintain a “buy” rating.

Risk warning

Risk of policy changes such as export tax rebates; risk of exchange rate fluctuations; risk of industry demand and overseas market expansion falling short of expectations; fluctuation in raw material prices and risk of product price reduction due to intense competition.