Thanks to the rise in volume and prices of tungsten and molybdenum, new energy materials and rare earths, the company's profitability improved significantly and its performance exceeded expectations in the first half of the year. The company's main metal prices maintain an upward trend, and the pace of capacity expansion is clear, and the sustained growth of profits has a high degree of certainty. The company focuses on the core business, and the quality of revenue and earnings continues to improve.
Maintain the company's target price of 40 yuan and maintain the "buy" rating.
The results in the first half of 2021 exceeded expectations, setting the best level for a single quarter since going public. In the first half of 2021, the company achieved operating income of 14.223 billion yuan, an increase of 79.48% over the same period last year, and a net profit of 687 million yuan, an increase of 194.40% over the same period last year. Non-recurrent net profit was 588 million yuan, an increase of 208.43% over the same period last year (non-recurrent profit and loss mainly came from government subsidies). The net profit of Q2 was 379 million yuan, an increase of 23.05% over the previous month, which continued to set the best level in a single quarter since listing. The company's performance in the first half of the year is mainly due to the rise in volume and prices of major products in tungsten and molybdenum, new energy materials and rare earth business, and a substantial improvement in profitability compared with the same period
Sales of high value-added products increased significantly, and the three main industries improved in an all-round way. In the first half of 2021, the company's tungsten and molybdenum business realized a total profit of 800 million yuan, an increase of 96.75% over the same period last year; the battery material business realized a total profit of 291 million yuan, an increase of 208.41% over the same period last year; and the rare earth business realized a total profit of 80.2099 million yuan, an increase of 127.86%. In the first half of the year, the production and sales of cemented carbide, cutting tools, magnetic materials and cathode materials increased significantly, and the gross profit margin increased synchronously. The increase in the contribution of high value-added products enhances the stability of the company's performance.
The pace of capacity expansion is clear, and high growth is expected this year and next. The company's three main industries are currently in the stage of capacity expansion, including Xiamen Jinlu bar production line, 1000 million CNC tool production line, Thailand Jinlu cemented carbide production base, Changting Jinlong 4000 ton magnetic material production line, Xiamen tungsten new energy Haiyang base 20, 000 ton production line and Ningde base 5000 ton technical renovation and expansion project, etc. The above expansion projects are planned to be put into production from 2021 to the end of 2022, superimposed prices go up, and the company's profit growth trend is clear.
With the continuous optimization of asset structure, the company focuses on the main business of advantages and enhances the quality of earnings. In the first half of 20201, the company announced one after another that it planned to list and transfer 60% of its real estate business, 30% of Longyan rare earth industrial park, and reduce its subsidiary Xiamen tungsten motor's shareholding to 40% (no longer merging the table). The company strips off its non-core business and focuses more on the core businesses with more profitability, such as tungsten and molybdenum non-ferrous metals, cemented carbide and high-end cutting tools, rare earth magnets, battery materials, and so on. It is expected that the company's revenue and earnings quality will be significantly enhanced in the future.
Risk factors: the risk of falling prices of metal products, the risk of falling gross profit margins due to increased market competition, and the release of lower-than-expected risks from new / expanded capacity.
Investment advice: thanks to the rise in volume and price of the main business, the company's performance continued to exceed expectations in the first half of the year. At present, the price of the company's main metal products is still on the rise, and the pace of the company's capacity expansion is clear, focusing on the core business with stronger profitability, and the sustained growth of profits has a high degree of certainty. The estimated return net profit of the maintenance company from 2021 to 2023 is 2.338 billion yuan for 14.35, 17.88, and 1.65 yuan for 1.01, 1.26, and 1.65, respectively, corresponding to the EPS forecast. Combined with the comparable valuation of the company's three main industries, give the company a valuation of 40 times PE in 2021, maintain the target price of 40 yuan, and maintain the "buy" rating.
