Guest Profiles:
Lu Yaozhi is the manager of Minghe Investment Fund. 5 years of manufacturing supply chain management and project management experience, 5 years of secondary market investment and research experience, bachelor degree in automation from Nanjing University, master of business administration from Shanghai Jiao Tong University.
Based on many years of experience in supply chain management and project introduction in the manufacturing industry, he can analyze the development and change process of the industry, the actual operation of the company and the core competitiveness from the perspective of industry. He has a unique understanding of industries such as machinery, automobiles, new energy, light industry and some optional consumers. The overall strategy dilutes the timing, buys in batches in the appropriate price range and holds for a long time, concentrates holdings, changes hands low, and obtains long-term gains.
The company's earnings growth rate is high, and the stock performance is not necessarily good
CBN: Welcome Mr. Lu as a guest of "Investors Say". At the beginning of this year, the A-share market has continued to adjust, funds are also looking for direction, and the views of sell-side analysts have also diverged. Some argue that this year's excess returns shift from high ROE to high growth (high G); others argue that the higher the growth rate, the better the stock will perform. What do you think? Will the market style be more in favor of large-cap blue chips or small and medium-sized market capitalization growth in the future?
Lu Yaozhi: The company's profit growth rate is high, and the stock performance may not be very good, which is not an inevitable link. Because it is very likely that the previous stock price increase has fulfilled the profit expectations of most investors. When the report comes out, it will of course be eye-catching, but the question is whether the subsequent sustainable development is stable. In this case, it is likely that there will be a consolidation, and if the competitive landscape continues to deteriorate in the future, assuming industry fluctuations or external shocks, the stock price is likely to fall rather than rise.
The core issue is to grasp the actual management ability and governance of the company. Its profitability is not excellent, the competitive landscape is not stable, the cash flow situation is not good, and the balance sheet is not solid enough. If this kind of company is in the case of a relatively low valuation, we will choose to invest, and the core still depends on the quality of profitability. We are firmly bullish on companies with low valuations, solid growth and sustainability.
CBN: You don't judge the market style?
Lu Yaozhi: We don't judge.
Companies that are optimistic about low valuations and steady growth
CBN: This year, everyone is discussing the high-low switch, and we all hope to find opportunities in low-value targets. So, how to find high-quality stocks with low valuations but growth?
Lu Yaozhi: There are many kinds of low valuations, some of which belong to the traditional recessionary industries, and the market feels that the development prospects of the industry are average, or there is basically no increment, and the pattern is relatively stable, so such companies are usually given a low valuation. However, there are some companies whose own operating capabilities are very good, but in the downward cycle of the industry, the market and investors have lost confidence in the industry, and they have also lost confidence in the company, thus giving a very low valuation. In such a situation, you buy and hold these undervalued high-quality growth companies, and wait for the industry to pick up, the future yield is very impressive, which is Davis double-click.
CBN: Are there any specific stock selection criteria? We worry that cheap things will always be cheap, how to avoid valuation traps?
Lu Yaozhi: You can refer to the PB-ROE model, through which you can select industries with low valuation and steady growth, and the success rate is relatively high. But it is only an indicator, and the selected company still needs to be carefully split to avoid valuation traps.
For example, the rise of large quantities has begun to gradually reflect in the second half of 2020. There is a company in the aluminum processing industry that has maintained a relatively good overall operation in recent years. In the second half of 2020, through the investigation of the upstream and downstream industrial chain and the company's exchanges, including the research, we found that the downstream boom was booming, and the operating ability of the enterprise at that point in time was already very good. At that time, I remember that in 2020, the market value was only a few billion yuan, corresponding to the valuation at that time was less than 10 times, or single digits. In 2021, its market value did not rise sharply, and at the beginning of the year, it was still in a small range of shocks, and the market value at that time corresponded to the profit in 2021, and the valuation was only 5 times, because the profit in 2021 was close to doubling, which was obviously a significantly undervalued stock. At the same time, from the perspective of the company's production capacity layout, production scale, including future industry development, the next three years are expected to be a compound growth rate of about 20%. Such a company, at the point at that time to buy and hold for a year, more than doubled, doubled is a very normal thing.
Heavy stock selection When light selection
CBN: Is it important to choose the time, and how to judge the time point of buying and selling?
Lu Yaozhi: We don't choose a time, we just choose stocks, and when we choose stocks, we already contain a time selection. It is not completely said that the low valuation can be bought, you have to judge that it is almost in the clearance cycle of the industry, or the early stage of the company's operation to buy. But usually you will have a choice, because the valuation low of individual stocks is not necessarily the low point of the industry, you need to carefully distinguish, the core is still a question of odds.
If you sell, when the stock price rises to a certain extent, we will give a reasonable valuation if we can fulfill our profit judgment for the next three years. At this valuation level, it is almost possible to take profit.
Excess gains in 2022 may come from undervalued sectors
CBN: Talk about your next layout ideas, what areas will the excess income come from this year?
Lu Yaozhi: This year's excess income may come from a sector that was underestimated by everyone in the previous two years, such as some companies in the traditional infrastructure industry chain, and some sub-industries in high-end manufacturing. After the electric vehicle industry chain and photovoltaic pullback, there will be some relatively good companies worth investing in.
The core of the new energy correction is that the short-term increase is too high
CBN: You just mentioned the pullback of new energy. For electric vehicles, an important news is that the subsidy for new energy vehicles has fallen by 30%, and the market is worried about the decline in demand; At the same time, some investors believe that there is not much room for the sector to continue to pull up valuations. Will new energy vehicles continue to be favored by funds this year?
Lu Yaozhi: Many investors will question the subsequent competitiveness of electric vehicles, and will consider whether production and sales can meet expectations. But the actual situation is that the subsidy decline is not sudden, most of the expected, including the time point and the extent of the decline, basically this piece is in line with expectations. The core is still too high in the short term, the degree of matching between valuation and profit growth will have a deviation value, at this time, then superimpose over-the-counter funds, including on-site capital for expansion, because in the past two years it is in the expansion cycle of capital, and the expansion of future production capacity will bring about the intensification of competition in sub-industries.
But I firmly believe that carbon neutrality, including electric vehicles, including photovoltaics, is certainly a core direction in the future. This industry is a fast-growing industry, but this growth is for the industry, not for individual stocks. The cyclicality of the operation of many companies is also obvious, including some sub-industries, whose profit model and pricing model have their own cyclical attributes, and are strong cyclical. So at this time, you need to pay attention to a point, don't mistake the cycle as growth, the current profit situation, including the recent reports are very eye-catching, but it may be a high point. By the time you realize that growth is starting to slow down, or that growth is flattening, the stock price may have fallen by half.
CBN: What will be the change in the pattern of the electric vehicle industry chain?
Lu Yaozhi: The competitive landscape of some industrial chains is very stable, because it is subject to equipment, there are so many equipment, and some companies directly set equipment to the next three or five years. Under such circumstances, its new capacity expansion is certain, and there is no large-scale expansion. Some industrial chains, such as some industrial chains upstream of batteries, have recently expanded too outrageously, and the competition in these industrial chains will intensify in the future.
CBN: At this point in time, will the absolute valuation of the electric vehicle sector as a whole be cheaper than at this point in time last year?
Lu Yaozhi: The absolute valuation is cheaper than last year. I think that when the valuation of electric vehicle industry chain companies and the certainty of future growth and the evolution of the future competitive landscape reach a balance point, the certainty of investment at that time is very strong. In this case, I believe that most investors will still choose new energy.
For example, in the photovoltaic industry chain, it is not necessarily the silicon wafer or silicon material that everyone cares about, for example, there are some consumables, like glass, you are like adhesive film, the competition pattern is still stable, and the expansion of production capacity is led by leading enterprises, these companies assume that the valuation has reached a reasonable position, and the status of its industrial chain is relatively stable in the future. Their costs can continue to fall, fully enjoy the development dividends of the industry, these companies are a key direction for future tracking.
For example, in the lithium battery industry chain, according to the upstream of lithium batteries, positive electrode, negative electrode, diaphragm, electrolyte, many companies issued announcements, how many tons were invested here, how many tons were invested there. The competitive landscape of these industrial chains has deteriorated to a certain extent, because the expansion is bound to bring about a decline in prices. Quantity and price are irreconcilable contradictions. Unless the industry boom is very high and the volume and price rise together, there will be excess returns in this case. In the short term, expansion is bound to cause prices to fall, and such an industry we need to avoid.
Multiple factors have caused a pullback in photovoltaic stocks Competition in the industry has intensified
CBN: The trend of the photovoltaic industry is good, but since the end of last year, what causes the stock price to continue to retrace?
Lu Yaozhi: There are many reasons for the stock price correction. Photovoltaic from 2018 "531" after the all the way to a three-fold discount, after the rise, rose to last year, from the absolute increase has been very high, from the company's profit growth is also very eye-catching. However, in the short term, there is still a certain deviation in the matching of valuation and growth rate. Now, corresponding to the growth of future installed capacity, the valuation of the photovoltaic industry is moderate. There are many market concerns, since last year, because the short-term production capacity of silicon materials can not be released on a large scale, the price is transmitted to the downstream components, and the price is also high. At that point in time, everyone was cautiously skeptical about the future installed capacity, which was a reason.
Secondly, from the announcements of many companies, the expansion of key companies in the photovoltaic industry chain is more, including some who did not do photovoltaics before, and are also entering this field, at this point in time, we can see that the future industrial chain competition pattern is not as stable as before, and competition will intensify. At this point in time, everyone still has doubts about certainty, so the pullback of the photovoltaic industry chain, its factors are many.
Silicon material tight balance Industrial chain profit redistribution
CBN: How do you view the overall valuation of the photovoltaic industry chain in 2022? What new changes will occur in the industrial chain this year, and what are your predictions?
Lu Yaozhi: In 2022, in the case of tight balance of silicon materials, the profits of the industrial chain will be redistributed. In the past few years, a certain link, from the upstream silicon material, to the silicon wafer, to the battery, to the component, the more profitable link may have to make a profit. The expansion of other industrial chains will also bring about profit redistribution, because the price is changing, and the downstream acceptance of component prices is also hoped that the price can be stable or fall a little. In this case, everyone will get a relatively good return, so the profit will definitely be redistributed.
CBN: Will the price of silicon materials be reduced this year?
Lu Yaozhi: Silicon material should fall a little more, but to count on the cliff fall of silicon material, the current situation seems unrealistic to me.
High-end manufacturing breeds the "hidden champion" of the subdivision industry
CBN: In the context of the transformation and upgrading of traditional manufacturing industry, what opportunities will there be in the high-end manufacturing industry?
Lu Yaozhi: Many sub-industries will have hidden champions. For example, a leading overseas electric vehicle company proposed integrated die casting, which bought a piece of equipment to produce itself and found that this solution was feasible. Then, many domestic enterprises have also begun to upgrade the process, this piece belongs to the high-end manufacturing of partial sub-industries, such a model is completely unimaginable before. In the future, assuming that the popularity of intelligent driving increases, there is no particularly high risk of integrated die casting, and it is still very considerable after popularization, which also has great investment opportunities.
Optimistic about investment opportunities in automobile intelligence
CBN: You mentioned the intelligence of the car, and I agree with the view that electrification is a structural alpha, and intelligence is a comprehensive beta opportunity. What is the current intelligent investment logic?
Lu Yaozhi: Automobile intelligence mainly looks at the penetration of various levels of intelligent driving, you should pay attention to the penetration of intelligent networked vehicles, and its penetration and popularization at each level will bring about the upgrading of the industrial chain. From the perspective of intelligent driving, it is divided into three parts: perception, decision-making and planning control, and each of its points has a relatively good industrial chain investment opportunity. We need to track the release of new models, including the application of new technologies. It is not reasonable, and there is no problem in the application process. When the technology can be popularized, the increase in the industrial chain brought by it is very considerable.
And automotive intelligence brings not only these industries, automotive electronics also has a large increment. In the past two years, there have been many consumer electronics companies with strong competitiveness in the company began to gradually penetrate into automotive electronics, and the sub-main business can develop relatively well, and can also bring about the company's secondary growth.