3Q19 month-on-month performance reversed losses
The company announced 1-3Q19 results: operating income of 450 million yuan, -45% year-on-year; net profit of 16.63 million yuan, corresponding to profit of 0.04 yuan per share, +402% year-on-year, in line with the performance forecast. 3Q19 revenue was 150 million yuan, -51% year-on-year, +13% month-on-month, net profit of 13.71 million yuan, -40% year-on-year, and +13.79 million yuan over the previous year. The company's 3Q19 performance reversed losses month-on-month, mainly due to an overall decline in expenses and an increase in investment income.
Comments: 1) Tantalum prices are declining. 3Q19 The average price of metal tantalum in China was 2,052 yuan/kg, -21% yoy/-8%, 1-3Q was 2240 yuan/kg, -13% yoy. 2) 3Q19 The company's gross profit margin (gross profit without tax and surcharges) year-on-year -3.7ppt/month-on-month -3.4ppt to 14.8%, gross profit -8% /-1.84 million yuan over the previous year. 3) Overall cost reduction. 3Q19 management expenses were -8.19 million yuan/ -39%, year over year -14.85 million yuan/ -54%; financial expenses were 3.3/ -81% month-on-month, +2.47 million yuan over the previous year. 4) The scale of return on investment has expanded. 3Q19 Net investment income was 11.82 million yuan, +82% /+5.32 million yuan, YoY +10893% /+11.71 million yuan, mainly affected by investment income from Northwest Rare Metal Materials Research Institute Ningxia Co., Ltd.
5) The 3Q19 effective tax rate was -51.7 ppt/year over year +0.2ppt to 0.3%. 6) Balance sheet health. As of 3Q19, the company's balance ratio was 29%, and the net debt ratio was only 11%.
Development trends
Expanding into new markets provides potential room for growth. After the company invested in business assets such as titanium and photovoltaics in 2018, it focused on the main tantalum and niobium business, and its performance improved year-on-year in the first three quarters of 2019. At present, the company is speeding up its layout in fields such as superalloy additives, chemical anticorrosive products, alloy ingot products, and superconducting products. We believe it is expected to increase the added value of products and create potential business growth space.
Profit forecasting and valuation
Considering that the company reversed losses in the third quarter, we raised our profit forecast for 2019/2020 by 173%/141% to 0.04/0.05 yuan.
The current stock price corresponds to 2.7 times/2.6 times the net market ratio in 2019/2020. Maintaining a neutral rating and a target price of 8.00 yuan, corresponding to 3.1 times the 2019 net market ratio and 3.0 times the 2020 net market ratio, there is 14.4% upward space compared to the current stock price.
risks
Demand fell short of expectations, and the price of tantalum fell sharply.
