Event Overview: The company released its 2022 annual report: the company achieved revenue of 3.203 billion yuan in 2022, +20.2% year on year; achieved net profit of 203 million yuan, +23.2% year on year; net profit returned to the mother after deduction of 170 million yuan, +29.7% year on year. On a quarterly basis, 22Q4 achieved revenue of 697 million yuan, +11.1% year on year, -16.1% month on month; net profit returned to the mother was 26 million yuan, -64.4% year on year, -29.4% month on month; net profit returned to the mother after deduction was 102 million yuan, -63.4% year on year, -3.9% month on month.
Comment: Give full play to the advantages of the entire industry chain and increase profitability ① Volume: In '22, the company's total production of tungsten, tin and copper decreased 1.41% year on year, and sales of tungsten carbide powder increased 14.32% year on year.
In terms of mining, all of the company's mining targets in '22 completed the plan at the beginning of the year. The total production of tungsten, tin and copper was 5276.47 tons, -1.41% over the same period last year. In terms of powder, sales of tungsten powder increased 0.81% year-on-year to 4041.07 tons. Sales of tungsten carbide powder increased 14.32% year on year to 4803.69 tons. Thermal spray powder sales were +43.76% year-on-year, to 373.34 tons.
② Price: The company's gross margin increased by 0.47pct to 15.58% in '22. Prices of key raw materials increased in 2022. Among them, the price of tungsten ore increased 12% year-on-year to 113,800 yuan/ton. The price of tin was +9.98% year-on-year, to 249,500 yuan/ton. Copper prices were -1.68% year-on-year, to 67,500 yuan/ton. The rise in tungsten ore prices drove the company's gross margin to rise 0.47 pct year over year to 15.58%.
Core future highlights: Upstream tungsten ore benefits from rising tungsten prices, and the downstream tool sector continues to improve ① The company has abundant resource reserves and strong profitability of tungsten ore. The company owns 6 mining rights mines and 8 prospecting sites.
In 2022, the company's mineral rights held 94,600 tons of tungsten resources, 17,600 tons of tin resources, and 12,800 tons of copper resources. The company's tungsten ore mining quota in '22 was 5,480 tons. With the gradual advancement of mine technology and mine integration, the company's tungsten ore production is expected to increase further. The company's tungsten ore production costs are low, and mining side profitability is strong.
② Seize development opportunities and reinvigorate the downstream tool sector. Ganzhou Aoketai, a wholly-owned subsidiary of the company, currently has a production capacity of 20 million pieces/year for high-performance carbide precision tools and 1,000 tons/year for tungsten carbide bars. In '22, Ganzhou Octay's revenue increased 17.54% to 501 million yuan, and net profit increased 56.82% to 0.03 million yuan. Domestic carbide blades have broad prospects for development, and the company's tool sector is expected to become an important growth point for its performance.
③ Leveraging the advantages of the whole industry chain, leading the domestic production of tungsten powder. The company has a complete integrated production system from upstream tungsten mining and beneficiation, midstream smelting to downstream deep processing. As of '22, the company had a production capacity of 15,000 tons of tungsten powder and 10,600 tons of tungsten carbide powder. According to statistics from the China Tungsten Industry Association in 2022, the company's tungsten powder production ranked first in the domestic industry and tungsten carbide powder production ranked second in the domestic industry in 2022.
Investment suggestions: As an integrated enterprise in the domestic tungsten industry chain, the company continues to expand production capacity, demand for hard alloys is growing steadily, the development prospects of the blade sector are broad, and the company's performance can be expected in the future. We expect the company's net profit to its mother in 2023-2025 to be 293/389/470 million yuan respectively. Corresponding to current prices, PE in 2023-2025 will be 28/21/17 times in that order, covered for the first time, and given a “recommended” rating.
Risk warning: product prices have dropped sharply, raw material prices have fluctuated greatly, project progress falls short of expectations, etc.