The Zhitong Finance app learned that Tianfeng Securities published a research report saying that the special steel industry has stronger growth attributes, so the valuation of the special steel industry should be distinguished from the general steel industry, and a certain valuation premium should be given. With the deepening of supply-side reforms, the promotion of domestic production substitution, and continuous industrial upgrading, special steel is expected to accelerate development in the fields of automobiles, military and aerospace, machinery, nuclear power, etc. The bank believes that the future prosperity of the special steel industry is expected to rise. It is recommended to focus on companies such as CITIC Special Steel (000708.SZ), a special steel “Big Mac” company, Yongjin Co., Ltd. (603995.SH), a leader in the stainless steel industry segment, and Jiuli Special Materials (002318.SZ), a leader in the oil and gas pipeline segment.

Tianfeng Securities's views are as follows:

Special steel positioning key, diverse application fields

Special steel is the core and key material required for major equipment and advanced weapons and equipment for national defense. Compared with ordinary steel, special steel has high strength, high toughness, wear resistance, corrosion resistance, etc. The types include carbon structural steel, alloy structural steel, spring steel, bearing steel, gear steel, stainless steel, electrical silicon steel, mold steel, tool steel, and high temperature alloy steel, etc., and is widely used in military industry, automobile manufacturing, new energy, transportation and many other fields.

High-end manufacturing boosts demand for special steel, and can be expected to benchmark the rapid development of special steel in Japan

Looking back on the past, China's special steel industry has made remarkable achievements. Against the backdrop of declining crude steel production, special steel production continues to rise. In 2022, China's special steel production was 168 million tons, and the CAGR for the past five years was 5.6%. The import and export price gap narrowed from 1,547 US dollars/ton in 2008 to 266 US dollars/ton in '22, confirming the rapid improvement of China's special steel self-protection capacity.

Looking at the present, high-end manufacturing is still the main line driving demand for special steel. First, the development of new energy vehicles has brought breakthroughs in production and technology, and demand in the largest application areas of special steel continues; second, the return of European and American manufacturing and strong infrastructure demand from emerging countries along the Belt and Road have pushed China's construction machinery overseas and boosted demand for related special steel; third, the acceleration of credit expansion since 23 years has stimulated a recovery in demand in the infrastructure sector.

Looking ahead, at three points, China is already close to the starting point of the rise of the Japanese special steel industry: first, the urbanization rate is close to peaking, real estate deconstruction is reducing demand for general steel, and steel companies are paying more attention to the transformation to premium special steel; second, the new energy vehicle industry is booming and automobile exports are starting to accelerate, feeding back the special steel industry in terms of volume and technology; third, policy convergence on industry optimization, including the industry's removal of production capacity, promotion of mergers and restructuring, and joint strengthening of pricing power for raw materials, etc. Looking at the medium to long term, China's special steel industry has embarked on Kangzhuang Avenue of rapid development.

Profit growth in the special steel industry is both intense and sustainable, and valuation is expected to be reshaped

The steel industry is a typical cyclical industry, but the bank believes that the special steel industry has stronger growth attributes, so the valuation of the special steel industry should be distinguished from the general steel industry, and a certain valuation premium should be given. The essence of valuation premiums is that profits have a greater ability to grow, and growth is guaranteed by two aspects: the intensity and sustainability of profit growth. The bank believes that for the special steel industry, sustainability comes from the background of the times driving the steel industry from general steel to special steel, and industry profits are also skewed towards the special steel industry; the strength comes from years of technology accumulation and capital expenditure. For this reason, the bank selected two indicators of capital expenditure/net profit and ROE. For this reason, the bank has selected two indicators of capital expenditure/net profit and ROE, and found that companies in the three categories of Bitsteel, Pruzent, and Prudential have indeed tended to decline in capital expenditure intensity and a marked increase in ROE, which validates this view.

Risk warning: Force majeure factors for upstream raw materials cause the risk of a sharp rise in prices, risk events causing a sharp decline in the global economy, and the risk of a wave of maintenance caused by continuous safety incidents.