ERDOS(600295) EBSCN·2024-10-10 06:03Investment Rating - The report initiates coverage with a "Buy" rating for the company [2][11]. Core Insights - The company has a stable performance in its coal business, while silicon alloy is expected to contribute flexibility to its earnings [1]. - The company is a leading player in silicon iron production, with a market share of 28% in China, and its profitability is sensitive to silicon iron prices [1][9]. - The company benefits from significant coal resources and investment returns from its coal mining subsidiary, providing a safety net for its earnings [1][10]. - The company has a diversified business model, including chemical and cashmere clothing sectors, which contribute equally to its gross profit [1][10]. Summary by Sections 1. Business Segments - The company operates in two main segments: cashmere clothing and power metallurgy chemicals, with the power metallurgy segment contributing 78% to net profit in 2023 [1][17]. - The company has a strong foothold in the cashmere clothing market, being the largest producer and seller globally [1][19]. 2. Silicon Iron Price Elasticity - In 2023, the company produced 1.54 million tons of silicon iron, with a historical peak price of 17,000 CNY/ton in 2021 [1][24]. - If silicon iron prices increase by 1,000 CNY/ton, the company's net profit could rise by 27% based on 2023 figures [1][9]. 3. Coal Resource Advantage - The company holds 289 million tons of coal reserves and has a washing capacity of 4.8 million tons, with coal contributing 16% to gross profit in 2023 [1][10]. - The investment return from its 50% stake in Yongmei Mining contributed 25% to the company's net profit in 2023 [1][10]. 4. Chemical and Cashmere Clothing Sectors - The chemical segment includes products like caustic soda and multi-crystalline silicon, contributing 29% to gross profit in 2023 [1][10]. - The cashmere clothing segment also accounts for 29% of gross profit, showcasing the company's balanced revenue streams [1][10]. 5. Dividend and Valuation - The company has maintained an average cash dividend of 2.4 billion CNY from 2021 to 2023, with a dividend yield of 8.6%, ranking high in the A-share steel sector [2][11]. - The forecasted net profits for 2024, 2025, and 2026 are 2.042 billion, 2.534 billion, and 2.928 billion CNY, respectively, indicating a positive outlook [2][11].