Summary of the report:
Benefiting from the boom in the oil and gas industry, profitability continues to improve after 2014, and the short-term trend remains unchanged. The company's revenue source is mainly galvanized pipe, but the profit share is decreasing; the revenue increment mainly comes from spirally welded pipe, straight submerged arc welded pipe and high-frequency welded pipe products, the profit share of the above products is growing steadily, due to the improving demand for oil and gas pipelines, the expansion of purchase and sales gap leads to a continuous rebound in gross profit margin after hitting the bottom, reaching the best profit level in 2018, and the high profit level is expected to remain or even continue to improve for a long time.
High-quality production capacity remains to be released, product structure continues to be optimized, and profitability is enhanced. After the steel-plastic pipe production line is put into production, it is currently investing in a new production line of 30,000 tons of high-quality thin-walled stainless steel pipe fittings, and the product structure continues to be optimized. At present, the company has a welded pipe production capacity of 1.3 million tons, and the comprehensive capacity utilization rate is 75%-80%. The production capacity of steel-plastic pipe production line needs to be fully utilized, and the annual production capacity of spirally welded pipe still has 200000 tons of release space.
The increase in the proportion of oil and gas consumption drives the growth of welded pipe demand, and the company welcomes the development opportunity after the pipe network is independent. On the one hand, "coal to gas" accelerates the optimization of China's energy structure; on the other hand, there are still some problems in the mileage and facility capacity of natural gas pipelines in China. We predict that the growth rate of production and sales of galvanized pipes will remain at 510% after 2018, the market size will exceed 100 billion, and the investment in natural gas pipeline construction is expected to exceed trillion yuan by 2025. The National Oil and Gas Pipe Network Company is expected to be established in the second half of the year, which will break the monopoly on the supply of oil and gas welded pipes by pipe factories in the oil system in the past, and peripheral pipe factories are expected to expand their business.
The poorly managed management factory was cleared, and the high-quality enterprise became the final winner. The company insists on high-quality operation, the premium rate has been kept at a low level in the industry during the past 10 years, the total capital turnover rate has been higher than that of its peers for a long time, the company has maintained low debt operation, and the capital structure is very healthy. Peers in the industry gradually withdrew from the welded pipe business under overcapacity and worsening profits, while the company emerged abruptly based on its accumulated strength and its profitability came from behind.
Company profit forecast and investment rating: we expect revenue in 2019, 2020 and 2021 to reach 4.807 billion yuan, 4.725 billion yuan and 5.074 billion yuan respectively, EPS 0.51,0.67,0.83 respectively, and corresponding PE 14.2x, 10.8x and 8.7x respectively. According to the vertical comparison with the company itself and the horizontal comparison with peers, we think that the reasonable PE and PB of the company in 2019 are 20X and 2.3respectively, and the corresponding three-month stock price is 10.2 yuan, maintaining the company's "highly recommended" rating.
Risk tips: (1) downstream demand for core products is lower than expected; (2) prices of raw materials are higher than expected.