gf securities
Zhou Dexin
The debate on steel stocks has been from the bottom to the present. Whether steel stocks are at the top or halfway up, objectively speaking, it will not be tested until the end of the year, but from the perspective of investment and research, it needs to make predictions. We offer the following opinions for your reference. There is still room for improvement in the valuation of the steel industry According to our summary of the steel stock market in recent years and the comparison of the valuation of the steel industry at home and abroad, we believe that there are still opportunities for steel stocks and there is still room for improvement in the valuation. In addition, the industry profits in 2007 will continue to grow, but the performance of the stock price will appear in the form of oscillation, and the amplitude of oscillation will be much greater than that in 2006, What needs to be reminded is that it is more difficult to make money in steel stocks.
The achievement of the valuation target will not rise in a straight line, but the occurrence of an upward oscillation industrial valuation revolution is much more difficult than the rise of the price of a single underestimated steel stock. Therefore, it is very important to grasp the timing of the steel stock investment in 2007. The prediction of investment opportunity is based on the following assumption: "The overall market will not see unilateral rise like that in 2006." From the perspective of opportunity, we can judge that there are still some investment opportunities for steel stocks before the middle of April, mainly from the rising steel price of the leading steel plant, strong demand for steel in infrastructure and industrial manufacturing, annual report and quarterly report, and dividend market.
In the second quarter, we believe that the steel price may turn downward. With the reduction of incentives to stimulate the steel stock market, there may be only asset injection and industry mergers and acquisitions. These two factors have been fully reflected in the steel stocks. With the increase of analysts' empty talk, we expect the steel stocks will step into adjustment.
Since the decline of steel stocks has always exceeded the steel price (refer to the author's 05-09-15 Analysis of Steel Cycle Strategy: Steel Price bottomed out in the first half of 2007), after full adjustment, it is preliminarily estimated that in the second half of the year (or after the National Day), the market will find that the profitability of the steel industry is not as bad as expected, so steel stocks will usher in greater investment opportunities again.
The second tier steel stocks, such as Handan Steel, Baotou Steel, Bagang, Nangang, Jiuquan Steel New steel vanadium The stock price has reached a high level in the industry, so we don't recommend it anymore. We suggest focusing on the leading stocks Baosteel, Wuhan Iron and Steel, Anshan Iron and Steel, and Taiyuan Iron and Steel.
Valuation discussion - 10x PE is not the ceiling of steel stocks. What is the appropriate level of valuation positioning for steel stocks? This is an old proposition that puzzles the market. There are absolute DCF method and relative comparison method in the large classification of valuation methods. The author always believes that the application of DCF method lacks a sound theoretical basis, so the author still prefers the relative comparison method. The core of the relative comparison method is to find the right reference. At present, the references used in the industry include (indicators include P/E ratio, P/B ratio, etc.): historical PE (PB) of domestic steel stocks, current PE (PB) of international steel stocks, and historical PE (PB) of international steel stocks (during a period similar to China's industrial development speed). Refer to the Special Analysis of Iron and Steel Industry Valuation written by the author on 04-12-14.
The valuation analysis of many stocks in the market serves the target price, that is, the indicators that are conducive to approaching the target price will be used. For example, if the P/E ratio is not good, the P/B ratio, P/S ratio, P/F ratio, etc. are used. At present, the "steel stock valuation/overall market valuation" method in other countries is also used. In addition, in terms of international valuation, the valuation of any country that is conducive to achieving the target price will be applied to that country. In fact, the corresponding valuation will be different if the economic development of each country is different and the capital market is inconsistent. For example, the P/E ratio of South Korea is generally low and that of Japan is generally high. This kind of valuation model that chooses "comparison object" to approach the target price is called "buttocks command heads" by the author. Since there is no absolutely correct method for valuation, we try to discuss valuation from a logical perspective.
We mainly take PE as a comparative indicator. The following is our empirical data for your reference:
1. The annual P/E ratio of steel stocks in China's history has not exceeded 16 times. The "steel flower" among the five golden flowers from 2003 can be used as a reference.
2. At present, the PE of international steel stocks is much lower than that of their counterparts during the rapid growth of industrialization.
Analyzing the history of steel development in the world, the rise of a country's industrial economy is always accompanied by the rise of its steel industry. In the 19th century, when European economy dominated the world, it was a steel mill represented by Krupp; At the beginning of the 20th century, when the American industrial economy dominated the world, American steel companies were powerful and became leaders in the global steel industry; Then came the rise of Japanese industry. In the 1970s and 1980s, steel companies led by Nippon Steel led the world; Then in the 1990s, the rise of the four Asian dragons led to the rise of POSCO in South Korea and Sinosteel in Taiwan. For example, the history of the stock market in the modern sense is far from that of the steel industry, so the review of the history of steel stocks can only start from the history with formal records. According to the records of Walking on Wall Street, we can see that in the 1940s and 1950s, the American steel stocks were very strong, and the P/E ratio was as high as 18 times. Posco, Newco in the United States and Sinosteel in Taiwan all have a history of high P/E ratios.
3. Domestic steel stocks should have a premium to the international market. As of March 1, 2007, the P/E ratio of major international steel stocks has increased compared with 2006. This increase is not due to the decline of the denominator (EPS), but due to the rise of EPS. The stock price has risen more sharply. The P/E ratio of POSCO has risen from 4-5 times to 8-10 times at present. At present, the profitability of China's leading iron and steel companies (compared with EBITDA) is not significantly inferior to that of international iron and steel companies, but the growth in the next 10 years is much better. In foreign countries, the international iron and steel giants basically have no new capacity expansion, which is called the sunset industry, while the domestic iron and steel industry has a good growth prospect in the period of heavy industrialization. In addition, domestic industry mergers and acquisitions have just begun, With the increase of industry concentration, the profitability of tons of steel will rise to the international level.
4. The decline of performance fluctuation of steel companies makes the proposition that "steel stocks must have low P/E ratio" no longer tenable. The low valuation of iron and steel stocks is mainly due to its periodicity. However, in the past four years (2003-2006), we have seen that the profit fluctuation of China's iron and steel industry has been very small, and even if it fell to the low point in 2005, the profit level in various industries is still high. We also measured the profit situation in 2007-2010, It is also believed that the possibility of low profits in China's steel industry is very small (it is possible to have low profits in a few months, but it is unlikely to occur in the whole year). Therefore, the steel industry will not have the huge fluctuations in the profits of Maanshan Iron and Steel Co., Ltd. in history. "Steel stocks must have a low valuation level" seems to be difficult to stand. If the PE of 30 times for commercial retail, 50 times for alcohol, 20 times for construction machinery (also a cyclical industry), 20 times for cement, etc. is reasonable, there is no reason for steel stocks to be only 9-10 times at present.
Therefore, we can conclude as follows: not 10 times or 12 times of the current 07PE is the ceiling of steel stocks, and reaching 15 times of PE for steel stocks is not a dream. The author demonstrated in the 2003 Iron and Steel Industry Investment Strategy Report that PE for steel stocks will reach 16 times. Of course, 16 times of PE was encountered at that time, but it did not stand firm. The report was once said to be a dream, Now, we believe that steel stocks will probably stand at 15 times PE in the next two years.
A bright future does not mean a smooth journey. The previous analysis is that there is room for improvement in the valuation of steel stocks, but we do not believe that this goal can be successfully achieved in the trend of steel stocks in 2007. We have always stressed the view that the undervaluation of individual stocks is relatively easy to be corrected by the market, but the undervaluation of an industry is difficult to achieve a breakthrough in valuation.
With regard to the steel industry in 2007, our view is "not as good as investors imagine, nor as bad as investors imagine". With regard to the advantages and disadvantages of the steel industry, many relevant analysis reports list them. We use the method of grasping the main contradiction to analyze. The main contradiction is that the situation of the rapid growth of steel supply will be alleviated, It will make up for the impact of declining exports. In addition, demand is still growing rapidly. During the industrialization period, China's demand for bulk raw materials will be very strong. Even in the context of the industry's decline in 2004 and 2005, we also adhere to the view that "the problem of China's steel industry is not demand, but supply", which has been proved by facts; Other factors are secondary contradictions, which will affect the steel price, but cannot determine the overall operating trend of the steel price.
We don't want to repeat the proposition that "steel price plays a guiding role in the market trend of steel stocks" (there was once an analysis report that the trend of steel stocks was less affected by the fluctuation of steel prices, so we won't argue any more. Our investment ideas mainly rely on the judgment of steel prices, with reference to the author's 05-09-15 Analysis of Steel Cycle Strategies: Steel Prices bottomed out in the first half of 2007), We judge that the steel price trend of the whole year will be "U" shaped. Although Baosteel has raised the sales price of steel in the second quarter, this positive will be reflected in the steel market in March. With the accumulation of negative factors in the steel industry, such as Export tax rebate Reduced pressure, steel anti-dumping The pressure brought by the increase in exports of Russia and India, other major Asian steel producers, on the international steel market, the disappearance of the favorable factors of low inventory due to the increased production of steel mills after the Spring Festival, and the psychological pressure on dealers caused by the price decline in the second quarter of the past years, we judge that the steel price will decline in the second quarter, no later than May.
Investment suggestion: Buy leading stocks and wait for the valuation revolution. Due to the hype of second tier steel stocks due to asset injection, mergers and acquisitions, and warrant factors, such as Handan Steel, Baotou Steel, Bayi Steel, Nangang, Jiuquan Steel, and Xingang Vanadium, whose share prices have reached a high level in the industry, we no longer recommend buying leading stocks Baosteel, Wuhan Steel, Angang Steel, and Taiyuan Steel, Leading stocks will lead a valuation revolution in the steel industry, while the rise of steel stocks in the previous stage is just a recovery of value. The operation of leading stocks can be held for a long time until the completion of the valuation revolution; Second, we can refer to our timing judgment and do some band operations.
Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
