Events:
According to the semi-annual report released by the company, the revenue in the first half of 2018 was 942 million yuan, down 2.57% from the same period last year; the total profit was 31.62 million yuan, up 117% from the same period last year; the net profit from home was 17.367 million yuan, up 236.63% from the same period last year; and the basic earnings per share was 0.02 yuan, up 100% from the same period last year.
Comments:
1. The sales scale of the middle and upper reaches shrank, and the proportion of the deep processing end increased: the company's revenue decreased slightly in the first half of 2018, mainly due to the contraction of the upstream and middle reaches, in which the revenue of ammonium paratungstate and tungsten oxide decreased by 77.51% and 14.61% respectively compared with the same period last year, while the tungsten concentrate with relatively low gross profit margin was not even sold to the outside world in the first half of 2018. However, in the case of more self-use of raw materials, the scale of high-margin deep processing business has greatly increased, of which the revenue of tungsten carbide powder and cemented carbide increased by 27% and 29.96% respectively compared with the same period last year, and the comprehensive gross profit margin increased by 4.27% to 16.47% compared with the same period last year. Gross profit increased 31.47% to 155 million yuan. The improvement of deep processing scale comes not only from the company's initiative to adjust the proportion of domestic and export sales in the upper and middle reaches, but also from the continuous rebound of the prosperity of the cemented carbide industry. This led to a 44% year-on-year increase in tungsten carbide prices in the first half of the year, and a month-on-month increase of about 11%. Cemented carbide enterprises raised prices in two rounds at the end of 2017 and the end of the first quarter of 2018, although they digested the price pressure of raw materials, but also reflected a rebound in downstream demand.
2. The financial expenses increased more, and Aoketai still lost money: in the first half of the year, due to the expansion of the loan scale, the year-on-year rise in interest rates and the increase in exchange losses, the financial expenses increased by 74% year-on-year to 37.34 million yuan, which greatly affected the net profit. In addition, the increase of R & D expenditure leads to the increase of management expenses, which is also the influence factor of net profit. Among the subsidiaries, although Aoketai still lost 57.43 million, its scale has been rolled out rapidly, with revenue increasing by 70% in the first half compared with the same period last year, and revenue from coated blades and bars by 64% and 493% respectively, reflecting the improvement of cemented carbide prosperity. With the continuous expansion of the scale, after Aoketai significantly reduces losses and even profits, the company's performance will be greatly improved.
3. Investment suggestion: it is estimated that the return net profit of the company from 2018 to 2020 is 0.40, 0.54, 78 million yuan respectively, and the EPS is 0.04, 0.06 and 0.08 yuan, respectively.
4. Risk hint: demand is lower than expected, trade war escalates, pan-Asian inventory is released.