Everbright Securities: Gave Luyang Energy Saving Buy rating

2021-10-29Sun Weifeng and Feng Mengqian of Everbright Securities Co., Ltd. conducted a study on Luyang Energy Conservation and released a research report "2021 Third Quarter Report Review: The industry's "β" resonates with the company's "α" and the growth attribute is enhanced", this report gives a buy rating to Luyang Energy Conservation, and the current stock price is 25.64 yuan.

Luyang Energy Saving(002088)

event:

The company released the third quarter report of 2021, the first three quarters of the operating income of 2.285 billion yuan, an increase of 51.49%; the net profit attributable to the mother of 404 million yuan, an increase of 82.03%; the deduction of non-attributable net profit of 393 million yuan, an increase of 78.57%. In the third quarter of the single quarter, the company's revenue was 838 million yuan, an increase of 34.75%; the net profit attributable to the mother was 146 million yuan, an increase of 41.48%, close to the upper edge of the previous performance forecast range.

Comments:

Sales increase to promote performance, profitability to improve: In 2021, the company will continue to promote the reform of the marketing system, the production capacity of low-end insulation products will be fully released, and the increase in product sales will drive profits upward. As capacity is fully unleashed, unit cost and expense amortization is also decreasing, further driving profitability. From the perspective of gross profit margin caliber, the company's first three quarters were 35.59%, a decrease of 5.09pct, mainly due to the adjustment of accounting standards, the transportation handling costs were added to operating costs. The net interest rate reached 17.69%, an increase of 2.97pct; the ROE reached 16.17%, an increase of 6.22pct, a record high.

Expected Q4 performance to improve month-on-month: supply and demand continue to be tight, and the ceramic fiber industry has recently shown signs of price increases. In this context, the company's product pricing or will move up the trend, thereby further increasing profits. The frequent industrial power curtailment in September has also caused a certain impact on the production of ceramic fibers, and at present, except for a small number of main production areas with a certain proportion of production limits, the vast majority of production lines have resumed normal operation, and the company's output is expected to improve month-on-month. If Q4 product prices rise and production and sales growth exceed expectations, the full-year results are expected to exceed our previous forecasts. However, at the same time, we also noticed that the cost of raw materials and energy may rise or have negative factors.

Industry BETA hit, demand is good, supply shrinks: ceramic fiber as a high-quality refractory insulation material, the early market penetration rate is not high (market size of about 8 billion), mainly due to: 1) the owner to replace the original solution is insufficient; 2) ceramic fiber is niche, the market awareness is not enough. At present, the above two problems have been solved under the multiple roles of the national energy conservation and carbon reduction policy and the reform of the company's marketing system, and the market may be rapidly expanding. On the supply side, due to the large power consumption in the production process of ceramic fiber, under the policy of dual control of energy consumption, the competitive pattern of low-end insulation materials is rapidly optimized.

The company's alpha continues to attack: 1) After continuous technological transformation, the company has increased the production capacity of single lines, reduced energy consumption, and its cost control capabilities are significantly ahead of its peers. 2) As the leader of the domestic ceramic fiber industry, independent research and development, leading technology, ceramic fiber related product categories are the most complete in China and even in the world. 3) Marketing system reform, low-end insulation products in short supply, rapid release. 4) Re-enter the capacity expansion cycle, technological transformation and new construction, we predict that the production capacity at the end of 21 is close to 430,000 tons, at the end of 22 or more than 500,000 tons. 5) Energy consumption control and environmental protection production restrictions have led to the elimination of low-end production capacity in the industry, and the supply has shrunk, while the company has not been affected, and the product volume can still continue to raise prices. 6) The company's expansion is less dependent on capital investment, free cash flow is relatively healthy, and the dividend ratio remains high (80%), with a margin of safety.

Profit forecast and valuation rating: Ceramic fiber, as an industrial insulation and energy-saving material, is expected to usher in demand expansion under the trend of energy conservation and carbon reduction. The reform of the company's marketing system superimposes the shutdown of low-end production capacity in the industry, re-enters the capacity expansion cycle, and further strengthens the growth attribute. We maintained the Company's net profit of $543, $659 and $791 million for the 21-23 years, respectively, corresponding to EPS of $1.07, $1.30 and $1.56, respectively, maintaining a "Buy" rating.

Risk Warning: Industry demand growth is less than expected; the company's market share increase is less than expected; capacity expansion is less than expected; price performance is less than expected; rock wool business recovery is less than expected; cash dividend ratio is significantly reduced.

A total of 5 institutions have given ratings and 5 buy ratings in the last 90 days; the average target price of institutions in the past 90 days is 29.7; the Valuation Analysis Tool of Securities Star shows that Luyang Energy Saving (002088) good company rating is 3.5 stars, good price rating is 3 stars, and valuation comprehensive rating is 3 stars.