Under the background of carbon neutralization, Inner Mongolia Autonomous region strictly implements the "dual control" policy, and other provinces are expected to follow.
The 2020 Central Economic work Conference clearly identified carbon peak and carbon neutralization as one of the eight key tasks in 2021. During the 13th five-year Plan period, Inner Mongolia ranks lowest in many energy consumption indicators, and the situation of double control of energy consumption is grim, and the problems of Wulanchabu and Ordos are the most prominent. After entering the 14th five-year Plan, Inner Mongolia Autonomous region began to rectify and reform ferroalloy smelting in key energy consumption industries. First of all, the preferential electricity price for industrial electricity is cancelled. secondly, the differential electricity price of 0.1 yuan is levied on the limited production capacity, and the cost per kilowatt-hour electricity is increased by 0.14-0.16 yuan. for the limited ferrosilicon production capacity without self-provided power plant, it is equivalent to a direct increase of 1120-1280 yuan. With regard to the elimination of backward production capacity, ore reheating furnaces with 25000kVA and below are expected to withdraw by the end of 2022, and those who meet the requirements can be replaced by capacity reduction by 1.25. Leading enterprises have a high probability of capacity replacement due to their cost advantage, while other small factories have less capital and do not have the cost advantage of self-power generation, so they are less likely to carry out capacity replacement. According to the schedule of restricted enterprises, 388000 tons of ferrosilicon production capacity is expected to withdraw naturally, accounting for more than 7 per cent of the national ferrosilicon production capacity.
After the introduction of the Inner Mongolia policy, Gansu Province introduced a similar policy, which began to impose differential electricity prices on restricted capacity in the second quarter. Gansu's ferrosilicon capacity accounted for 10% of the country's capacity.
According to 19 years' data, the provinces with the top three growth rates of total and unit energy consumption are Inner Mongolia, Ningxia and Liaoning. Ningxia is another major producing area of ferrosilicon, if Ningxia issues the relevant dual control policy, the shortage of ferrosilicon will be further intensified.
Ferrosilicon accounts for a relatively low cost in the downstream, and the price increase flexibility is larger.
According to Mysteel statistics, the national coke production capacity in 2020 is 25 million tons, accounting for only 5% of the national output in 2019, and the price of coke has increased by more than 50%. The ferrosilicon production capacity of Inner Mongolia, which is listed as a restricted capacity and does not have its own power plant, has reached more than 7%. Ferrosilicon plants with their own power plants will lose another part of their production capacity no matter they are replaced or exited. Other provinces may also introduce corresponding policies later, and the actual impact is bound to be greater than this proportion. While ferrosilicon accounts for less than 5% of the cost of iron and steel, and coke accounts for 30% of 40%, ferrosilicon is bound to be more flexible than coke.
Ordos is the national ferrosilicon leader, benefiting from the rising prices of ferrosilicon and PVC.
The annual output of ferrosilicon in Ordos is 1.6 million tons, accounting for more than 30% of the national output. We conservatively assume that the price of ferrosilicon will increase by 50% to 8500 yuan, then the price excluding tax will increase by 2500 yuan. For every 1 yuan increase in ferrosilicon price, the company's profit will increase by 1160RMB (output) * 78% (minus minority shareholders' profit and loss) * 85% (after deducting income tax) = 1.06 million yuan, and the profit will increase by 2.65 billion yuan corresponding to the increase of 2500 yuan in ferrosilicon excluding tax. This year, only considering the price increase of PVC and the second phase of production, polysilicon subsidiaries turn losses into profits, profits can reach more than 3 billion yuan. Under the 50 per cent price increase, the performance forecast for 2021 is expected to reach 6 billion, corresponding to 10 times PE, with a target market capitalization of 60 billion.
Profit forecast and investment advice: we estimate that the company's operating income from 2020 to 2022 will be 22.231 billion yuan, 30.279 billion yuan and 31.093 billion yuan, respectively, and the corresponding return net profit will be 1.744 billion yuan, 6.022 billion yuan and 6.347 billion yuan respectively, and the corresponding PE score will be 103,2.8 yuan. Taking the performance in 2021 as the valuation benchmark, corresponding to 10 times valuation, the company's reasonable market capitalization is 60 billion, and the corresponding stock price is 42 yuan, maintaining the "buy" rating.
Risk hint: policy implementation is not as strong as expected.
