Electrode Foil Industry

Transcription

1 Equity Research Electrode Foil Industry Electrode Foil Industry Supply still weaker than demand, prices to continue to rise Ou Yafei SFC CE No. BFN GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Contribution from the GF A-share research team: Ju Guoxian * juguoxian@gf.com.cn * Please note that Ju Guoxian is not a registered licensee with the Securities and Futures Commission of Hong Kong and is not allowed to conduct regulated activities in Hong Kong. Supply to continue to lag demand, prices to keep rising Electrode foils are mainly produced in China. Due to multiple factors such as domestic environmental regulations in 2017, there has been a shortage in the supply of electrode foils. Import and export data for the electrode foil industry in China and Japan show a rise in prices. Environmental regulations are set to be tightened in China, and there will be limited supply growth overseas, as well as steady demand growth both in the domestic market and overseas. Supply is likely to continue to lag demand and we expect prices to continue to rise. Supply: multiple factors including environmental regulations causing a shortage in supply Multiple factors such as environmental regulations have exacerbated the shortage in electrode foil supply. Production is concentrated in China and Japan, with China accounting for 68% of global production in Environmental regulations were ramped up in 2017 and some electrode foil companies (particularly small manufacturers that struggled to meet the requirements) were closed down given the significant amount of air and water pollution emitted during production. This led to a shortage in supply, which we expect to continue given limited supply increases overseas, the high barriers to entry in electrode foil manufacturing, and the slow increase in upstream production capacity. Demand: China representing an increasing proportion of global demand, strong downstream demand; consumption of electrode foils to flourish We expect global demand to grow steadily, and believe China will represent an increasing proportion of this demand. With solid growth in demand from downstream sectors such as consumer electronics, telecoms and auto electronics, which represent 45%, 2 and 7% of aluminum electrolytic capacitor consumption respectively, and with the rapid growth of new consumer goods sectors such as NEVs, demand for electrode foils should flourish going forward. The China Electronic Components Association estimates global and domestic consumption will grow at and 5% respectively in 2019, reaching 82.6k and 53.5k tonnes, with domestic consumption accounting for 65% of global consumption. The country s share of demand is likely to continue to grow in the future. Stock pick: HEC Technology ( CH) The rising price of electrode foils will benefit quality listed companies that are strong in terms of environmental protection. HEC Technology has first-class etched foil technologies in the domestic market, with aluminum electrolytic capacitor production capacity of 150m units/year, etched foil production capacity of 28.50m sqm/year, and mid/high-voltage formed foil capacity of 40.50m sqm/year. In 2017, the company posted net profit of Rmb523m, up 378% YoY. It also acquired a 50.0 stake in HEC ChangJiang Pharmaceutical (1558 HK) to strengthen its business. HEC ChangJiang Pharmaceutical has committed to 2018/19/20 annual net profit of no less than Rmb577m, Rmb653m and Rmb689m. As well as HEC Technology, we also like Hua Feng Electronic Aluminium Foil ( CH) and Aihua Group ( CH). Risks Downstream demand for electrode foils slows or misses expectations; prices decline due to electrode foil supply surpassing demand; raw materials and energy prices rise significantly leading to a considerable increase in costs that in turn depresses profits; overly rapid growth in global and domestic production capacity lead to a price decline for electrode foils; R&D capabilities in other countries improve and insufficient domestic R&D ability weakens domestic demand; international trade conflicts affect imports and exports. This is a summary of a report originally written in Chinese. Please contact us for more information of the original report. The Chinese version shall prevail in the event of any discrepancy between the two versions.

2 Figure 1: Prices of electrode foils continued to rise during 电极箔均价 Average price of electrode foils 增长率 Growth % 2% -2% - - Sources: China Non-Ferrous Metals Industry Association, GF Securities Development & Research Center Figure 2: Output, demand and export data for domestic electrode foils (10k tonnes) 产量 Output 需求量 Demand 净出口 Net exports 产量增长率 Output growth ( 右 (RHS) ) 需求增长率 Demand growth ( 右 )(RHS) 3 28% 25% 2 15% 12% 1 1 9% 9% 5% 5% 3% 1% -3% -5% Sources: China Aluminum Association, GF Securities Development & Research Center 2

3 Figure 3: Major global players in the electrode foil industry Company Region Origin Key products Major markets JCC Japan Japan Electrode foil Japan, China, Korea, Taiwan NCC Japan United States, Korea, Mainland China, Taiwan, Malaysia, Indonesia Capacitors, electrode foil A dozen of countries around the world HEC Technology ( CH) Guangdong China Xinjiang Joinworld ( CH) Xinjiang China Jianghai Capacitor ( CH) Nantong China capacitor full-industry-chain products, aluminum deep processing products, chemical products capacitor upstream products capacitor, formed foil China, Japan, Europe China, Taiwan, Hong Kong, Europe, America, Japan, Korea, India China, exports Hua Feng Electronic Aluminium Foil ( CH) Guangdong China Low voltage formed foil China, exports Sources: Haixing Limited Company IPO prospectus, GF Securities Development & Research Center Figure 4: Global aluminum electrolytic capacitor market size and forecasts (US$ m) 市场规模 Market size 增长率 Growth E 2018E 2019E 2020E 2021E % % % % 0. Sources: China Electronic Components Association, Hua Feng Electronic Aluminium Foil IPO prospectus, GF Securities Development & Research Center 3

4 Figure 5: Electrode foil consumption to grow steadily both in China and globally (10k tonnes) Global electrode foil China s electrode foil 全球电极箔消费量 consumption 中国电极箔消费量 consumption Global 全球 consumption YOY YoY 中国 China s YOY 中国占比全球 China/global consumption YoY E 2017E 2018E 2019E Sources: China Electronic Components Association, Haixing Limited Company IPO prospectus, GF Securities Development & Research Center Figure 6: Formed foil output in China and global demand forecasts (10k sqm, %) 全球化成箔需求量 Global demand for formed foil 中国化成箔产量 China s formed foil output 全球化成箔需求 Global demand for YOY( formed 右 ) foil 中国化成箔产量 China s formed foil YOY( output 右 ) YoY (RHS) YoY (RHS) E 2018E 2019E 2020E 2021E 9% 8% 7% 5% 3% 2% 1% Sources: China Electronic Components Association, Haixing Limited Company IPO prospectus, GF Securities Development & Research Center 4

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