China Galaxy Securities: Expectations of a two-piece can price increase fully anticipate the return of industry value

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that with the completion of the acquisition of COFCO Packaging (00906) by Orekin (002701.SZ), the competitive landscape of the industry has improved dramatically, the relationship between supply and demand in the market is becoming reasonable, and there is sufficient momentum for downstream price increases in the future, which is expected to drive the industry's profitability to continue to recover.

The main views of China Galaxy Securities are as follows:

The domestic two-piece tank competition pattern is optimized, and the profit center is expected to move upward

In 2023, China's two-piece can market reached 44.7 billion yuan, with a compound growth rate of 8.3% in 18-23. The market size is expected to reach 77.6 billion yuan in 2030. The production capacity situation and downstream demand situation in the two-piece can packaging industry will directly determine the average price trend of the industry. 1) The absorption of production capacity in the industry is highly correlated with the average price of the industry. 2) Market concentration directly determines the bargaining power and profitability of the industry. Compared to the overseas two-piece can market, the competitive pattern in the Chinese market before 2025 was relatively scattered, and there was overcapacity. In 2024-2025, the industry's production capacity will enter the digestion stage. As Orekin completed the acquisition of COFCO Packaging, the competitive pattern of the industry was further optimized. Top 3 companies had a market share of over 70%, and leading companies were more uniform in their demands for profit restoration. Pricing for downstream beer, carbonated drinks and other customers is expected to increase in 2026, driving the industry's profitability improvement and value return.

Benchmarking overseas: there is more room for improving profitability

Leading overseas metal beverage packaging companies have had many mergers and acquisitions in history, and eventually reached a high market concentration (Bol > 30%, Crown > 20%), and every large-scale resource integration has boosted the company's performance. After Crown acquired Mivisa Envases and EMPAQUE in 2015, it became the second largest beverage can supplier in the world, increasing gross margin by 3-4 pcts; Bol established an absolute leading position in the two-piece can market after acquiring Rexam in 2016, and both valuation and performance increased significantly. Against the backdrop of high market concentration, overseas leaders have shown strong bargaining levels and profitability. Currently, the unit price of leading overseas beverage cans is within the 0.7-0.8 yuan range, while leading domestic companies (taking Baosteel Packaging as an example) have a unit price of less than 0.5 yuan/can. Currently, the overall gross margin of leading overseas companies is in the 15% to 20% range, while the average gross margin of the domestic two-piece can business is less than 10%. The overall profitability of the industry is at a low point that needs to be repaired, and there is plenty of room for improvement.

Review: The conflict between supply and demand pushes the continuous integration of industry resources towards healthy competition

Reviving the two-piece metal packaging industry. In history, the industry has experienced a complete cycle of concentrated release of production capacity -- vicious competition due to oversupply -- capacity digestion and resource consolidation -- industry profitability restoration: 2012-2017, increased industry supply concentration combined with rising raw material costs, squeezing industry profit margins. In 2017-2019, the industry experienced industrial integration, SME clearance, and foreign-funded enterprises, Pol and Pacific, which successively withdrew from the Chinese market. Leading companies completed multiple rounds of mergers and acquisitions, and the average price of the industry rebounded, driving the recovery of gross margin and net margin of listed companies, 2019. The annual gross margins of Orekin, Baosteel Packaging, and Carmey Packaging two-piece can businesses were restored to 10%/13%/12%, respectively, and net margins were 7.4%/2.7%/6.6%, respectively.

From 2021 to 2023, leading companies such as Baosteel Packaging and Orekin built new domestic production lines one after another. Market supply increased again, and industry profits were once again under pressure. With Baosteel's two-piece can business representing the overall level of the industry, its gross margin fell from 13.3% in 2019 to 8.6% in 2024. In 2024-2025, the capital expenditure of leading companies dropped sharply, production capacity investment leveled off, and historical excess capacity was gradually digested. After Orekin's acquisition of COFCO, the market share of the TOP3 in the two-piece can packaging industry increased dramatically, the competitive pattern was optimized, and the industry's bargaining power increased, which is expected to drive the average price of the industry back to a reasonable range.

Risk Alerts

The risk of fluctuating raw material prices, the risk of increased industry competition, and the risk of a slowdown in downstream demand growth.