We have been deeply involved in the tungsten industry for more than 20 years to achieve the layout of the entire industry chain. Established in 2000, Zhangyuan Tungsten Industry Co., Ltd. is mainly engaged in the production and sale of tungsten concentrate, ammonium paratungstate (APT), tungsten oxide, tungsten powder, thermal spray powder and hard alloy products using tungsten as raw materials. It has now established a complete integrated production system of “upstream mining - midstream smelting - downstream deep processing”. The company's shareholding structure is relatively concentrated and stable.
The upstream has tungsten ore resources, benefiting from rising tungsten prices. The company is one of the top ten tungsten ore producers in the world, with 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 is one of the few domestic enterprises with the ability to produce their own tungsten concentrate. The self-sufficiency rate of tungsten concentrate reached 20%, and the company produced 4000 tons of tungsten concentrate in 2022 (65% WO3). It is expected that in the context of rising tungsten prices, the company's upstream resources can bring cost advantages and increase profits.
Middle and downstream tungsten powders and hard alloys continue to be released, and the growth rate of thermal spray powder is impressive. 1) The company's midstream mainly focuses on tungsten powder, with sales volume of 4041.07 tons of tungsten powder in 2022, with a compound growth rate of 24.97% in 2020-2022; sales of tungsten carbide powder in 2022 were 4803.69 tons, with a compound growth rate of 32.57% in 2020-2022. 2) The company mainly lays out tungsten carbide series products downstream. Currently, the company's coated blade business continues to improve. The company's coated blades sold 17 million pieces in 2022, with a compound growth rate of 26.64% in 2020-2022, sales revenue of 239 million yuan, and a compound growth rate of 32.57% in 2020-2022. 3) Thermal spray powder is an emerging business downstream of the company's industry chain. Revenue in 2022 was 24.31 million yuan, an increase of 63% over the previous year, net profit of 2.72 million yuan, an increase of 32% over the previous year. The gross margin of thermal spray powder reached 28.17% in 2022, which is significantly higher than the company's other powder products.
Performance grew rapidly, and cost rates and cash flow improved markedly. The company's performance has grown strongly in recent years, achieving revenue of 3,203 billion yuan in 2022, an increase of 20.23% over the previous year, and Guimu's net profit of 203 million yuan, an increase of 23.03% over the previous year. In recent years, the company's cost control has been good. The cost rate for the period has been reduced for many years. The cost rate during 2022 was 9.05%, a year-on-year decrease of 1.05 percentage points. The company's operating cash flow improved markedly. The net inflow of operating cash flow in 2022 was 210 million yuan, an increase of 32 million yuan over the previous year; the net outflow of cash flow from investment activities was 202 million yuan, an outflow of 21 million yuan less than the previous year.
Investment advice: The company's net profit for 2023-2025 is estimated to be 236, 329, and 411 million yuan, corresponding PE is 39.5, 28.4, 22.7 times. The company is given a target price of 9.62 yuan/share for 23 years, covering the first “highly recommended” rating.
Risk warning: the risk of fluctuations in tungsten prices, the progress of the company's projects falling short of expectations, and downstream demand for products falling short of expectations.