Warburg Securities: strong demand for high-end titanium continues to prove

Main points of investment:

From the performance report of the leading company, the prosperity of superalloy and titanium alloy continues to confirm. In the long run, with the opening of the global civil aviation market, the demand for titanium alloy and superalloy is beautiful one after another. from the industry chain that directly benefits from aero-engines, superalloys and titanium alloys will benefit from the core. Superalloys and titanium alloys are the two largest materials in aero-engines, accounting for 40% and 30% respectively.

Fushun Special Steel is the core enterprise of military superalloy materials. The substantial increase in 2021Q2 performance compared with the same period last year and month-on-month further validates the magnificent demeanor of the military industry. Superalloy is the core upstream track of the military industry, which directly reflects the prosperity of the aero-engine industry. The successive announcements of Fushun Special Steel and Steel Research Gaona show that the superalloy industry is currently in the upstream stage of prosperity, constantly verifying the high prosperity of the aero-engine industry chain. Bao Ti Co., Ltd. belongs to the field of military titanium alloy, and the proportion of titanium alloy will be further increased in the process of upgrading and upgrading of fighter jets in our country. at present, the proportion of titanium alloy of the second generation aircraft is about 2-4%, while the third and a half and fourth generation aircraft, which are the key models during the 14th five-year Plan period, the proportion of titanium alloy will be increased to 15%, 25%, boosting the prosperity of the upstream titanium alloy industry.

Aviation power is expected to be released on a large scale during the 14th five-year Plan period. In order to achieve the centenary goal of building the army, it is necessary to provide strong material and technical support with advanced weapons and equipment systems. During the 14th five-year Plan period, China's aviation equipment, especially the main combat aircraft, will be accelerated and upgraded. In addition, actual combat training will also increase the loss of fighters and other weapons and equipment, thus increasing the demand for aero-engines both in terms of increment and stock, and there will be a certain increase in the number of military aircraft and the demand for single-aircraft alloys.

From 2021 to 2025E, the demand for superalloys in China shows a continuous growth trend, and the growth rate is expected to reach 11% in the past five years. The supply and demand of superalloys have been increasing in recent years, but in recent years, the effective supply has been far less than the demand, resulting in a large negative gap between supply and demand. At present, the production capacity growth of the industry is mainly due to the expansion of existing manufacturers. In the future, the domestic superalloy still has a large capacity space to meet the huge high-end demand market, the most important of which is to achieve self-sufficiency in the aviation field.

The R & D and production of high-end titanium materials is the main development trend of domestic titanium products, and the growth rate is expected to reach 8% in the next three years. In the future, under the guidance of national strategies such as the 14th five-year Plan and civil-military integration, the demand for titanium materials in middle and high-end fields such as high-end chemical industry, aerospace, marine engineering, shipping and medical treatment is accelerating.

Risk hint: orders for military and civilian products are not as expected, the company's fund-raising projects are blocked, and the order delivery capacity is insufficient.