Rubber Conveyor Industry: Continuous Improvement in Profitability
For the first time, we covered the rubber conveyor belt industry. We expect that the demand for rubber conveyor belts from coal, steel, cement, ports, and electricity in the downstream industries will increase gradually. We are particularly optimistic about the demand for conveyor belts in the coal industry. At the same time, we expect that the cost pressure on the rubber conveyor belt industry is expected to gradually improve during the drop in rubber prices. The profitability of the industry will continue to increase under the conditions of increased demand and reduced costs. We strongly recommend two low valuation advantages in the rubber conveyor belt industry. The company, for the first time, covered Baotong with a “recommended” rating, and for the first time covered Double Arrow shares to give a “prudent recommendation” rating.
The downstream demand for rubber conveyor belts mainly comes from the five industries of coal, steel, cement, ports, and power. We are particularly optimistic about the demand for conveyor belts in the coal industry.
The five-year compound growth rate of China's fixed assets investment in coal mines reached 27%, and it maintained a high growth rate of 30% in the first four months of 2012. In 2008, the market scale of coal conveyor belts in China was 4.24 billion yuan and the demand was about 120 million square meters. According to a compound growth rate of 27%, the demand for coal conveyor belts in 2012 will reach about 320 million square meters, and the market size will reach 112. Over 100 million yuan, huge capacity and promising prospects. Rubber conveyor belt will usher in a broad space for growth in the field of coal mines.
The huge stock effect of the steel and cement industry will still bring stable demand support to the conveyor belt industry. Although the investment in fixed assets declined in the steel and cement industry, the growth rate of production slowed down significantly. However, since the conveyor belts used in these two major fields are mainly heat-resistant and heat-resistant conveyor belts, the service life is only 2-3 months. Demand is the most important part of its needs. We believe that the demand for rubber conveyor belts in the steel, cement, ports and power industries will continue to grow steadily.
We believe that with the change in the pattern of supply and demand, rubber prices will steadily decline in the future, and the cost pressure on rubber belts will drop sharply. At the current price level, rubber costs account for approximately 40-50% of the total cost of the conveyor belt. The profitability of the rubber conveyor belt is very sensitive to rubber prices. Since natural rubber will enter the peak of tapping in the future, and tire demand will be affected by the slowdown in the growth of the auto industry, and the high price of oil will fall, we expect the price of natural rubber to steadily decline in the future. Since the fourth quarter of last year, the prices of natural rubber and synthetic rubber have apparently declined, and the profit of listed companies has obviously recovered in the fourth quarter of last year and the first quarter of this year. Since May, rubber prices have been falling at an accelerated rate. The declines in natural rubber, styrene butadiene rubber and butadiene butadiene rubber have reached 12%, 17% and 17% respectively. The gross profit margin of the conveyor belt industry in the second quarter is expected to continue to increase.
Baotong's major breakthrough in the coal industry has made its future performance even more interesting. In February of this year, the company reaped the Shenhua Group's 63 million yuan flame-retardant steel rope core belt contract, and the laminated fire-retardant tape also became the only qualified supplier of Shenhua, marking the company's breakthrough in the coal mine field. In addition, the company's high-strength wire rope belts are still limited by the capacity bottleneck, and many potential large customers cannot take orders. The over-subscribed 6 million square meters wire rope core belt project is expected to be completed by the end of this year and early next year, providing the company with new incremental performance. . Coupled with the steady decline in the price of rubber, the outlook for earnings in the next two years is promising, and the first coverage will be given a “recommended” rating.
Double Arrow is one of the largest rubber conveyor belts in China and has a very flexible performance for rubber prices. For every 1,000 yuan drop in rubber prices, the company's performance will increase by 0.12 yuan, which is the most obvious benefit from the drop in rubber prices. The company's market share in the coal mining industry has been rising year by year, and it is expected to benefit the downstream industry's high degree of prosperity.
At the same time, the company's tubular conveyor belts and other products have core technical advantages and outstanding profitability. For the first time covered by "prudent recommended" rating.
Conveyor quality requirements cannot drop