Domestic high-end copper alloy bibcock conforms to the trend to undertake industry dividends [institutional review]

The high-end alloy conforms to the policy trend, and the core benefits from the wave of localization. In recent years, the net import of copper alloy in China shows a downward trend year by year, and the overall self-supply capacity of the industry is enhanced, but some high-end copper alloy materials still rely on imports. In "made in China 2025", the State Council clearly pointed out that China should achieve the independent guarantee of 70% core basic components and key basic materials by 2025, and domestic substitution is imperative. As a leading enterprise of special alloy and new materials in China, the company has been ploughing the field of high-end copper alloy for many years, with complete independent intellectual property system and complete product brands, covering 5G communications, new energy automotive electronics, semiconductor chips, intelligent terminals and equipment and other industries. With its deep technical accumulation, the company has successively launched core products such as high-end alloy plates and wire rod products, such as VC soaking plates and semiconductor lead frames, which have been recognized by downstream high-end customers, taking the lead in breaking down high-end alloy technical barriers and realizing the domestic substitution of some high-end products. It is expected that with the help of policy-driven and industrial upgrading, the company will benefit from the trend of domestic substitution of high-end alloys.

The prosperity of downstream high-end applications continues, and the demand in the field of new energy and communications is strong. The penetration of new energy vehicles is increasing, driven by global demand for low-carbon environmental protection. According to IDTechEx, the global penetration rate of new energy vehicles will reach 19 per cent in 2030 and rise to 72 per cent in 2040. The vigorous development of the new energy vehicle industry has brought a huge demand for copper and its alloys. According to the (ICA) statistics of the International Copper Association, compared with the copper consumption of each 20kg of the traditional diesel locomotive, the average copper consumption of pure electric vehicles is up to 83kg, which is distributed in the lithium battery electrodes, motor coils and high-speed high-voltage connectors and other parts of the vehicle body. In addition to new energy vehicles, copper alloy has become the main heat dissipation material for 5G base stations and consumer electronics such as mobile phones and computers because of its excellent thermal conductivity. In addition, lead frames, as the main structural materials for integrated circuit packaging, are mostly made of copper alloys. The company's new material products cover 17 alloy series more than 100 grades, is the domestic high-end special alloy brands and production lines of the most complete manufacturing enterprises, its products as raw materials are widely used in the production process of parts in the above-mentioned fields. Under the background of the rapid popularization of new energy vehicles, 5G network and the vigorous development of consumer electronics and semiconductor industry, the company will fully benefit from its rich product line layout.

Layout ahead of time to expand production and technological renovation projects, and increase production capacity to open up room for long-term growth. In order to cope with the growing market demand, the company has laid out the expansion and technical transformation of its main business ahead of time, and its production capacity is expected to increase significantly in the future. In terms of new materials: the company launched the 50,000-ton special alloy strip project in 2018, and recently the overall project progress affected by the epidemic has been delayed, according to the semi-annual report, it has entered the trial production stage, and started the construction of 6700 tons of aluminum welding wire project in 2019. The construction work of the first phase of the project has been completed and entered the trial production and marketing stage in the middle of the year. The construction of the production line of 31800 tons of special alloy bar line and the production line of 20000 tons of special alloy strip at the Bekenhoff Vietnam Plant was launched in 2020. the main equipment of the project has partially entered the installation stage in the middle of the year. The bar project is undergoing equipment foundation construction and equipment delivery phase, and the plate and strip project will be implemented after the 50,000-ton project is put into production. New energy (photovoltaic): starting from 2020, we will implement a large-scale upgrade project for the battery workshop, upgrading the battery chip specification from 166 to compatible with 182 Unix 210. With the completion and commissioning of the above related expansion projects, we expect the company's total production capacity of new materials to increase to 270000 tons in the next three years from 150000 tons by the end of 2020. according to the semi-annual report, the new energy capacity will be increased from the original 700MW to 1GW, which will fully meet the further growth of future market demand and lay the foundation for the company's long-term performance growth.

Investment suggestion: with technological breakthroughs in high-end applications and complete product system, the company will fully benefit from the relevant downstream high-profile demeanor and domestic alternative demand in the future. the gradual landing of the production expansion and technical transformation project will also ensure that the company's production capacity will fully meet the future market demand. We expect the company's net profit from 2021 to 2023 to be 3.52,6.18 and 795 million yuan respectively, covering it for the first time and giving it a "overweight-A" rating.

Risk hint: the price of upstream raw materials continues to rise; the progress of production expansion of new materials is not as expected; the growth of downstream demand is not as expected.