Key points of investment
Incident: The company released its semi-annual report for 2023. During the reporting period, the company achieved operating income of 5.51 billion yuan, an increase of 12.52% over the previous year; realized net profit of 1,493 billion yuan, an increase of 124.49% over the previous year, and realized net profit of 1,488 billion yuan after deducting non-attributable net profit of 1,488 billion yuan, an increase of 126.05% over the previous year. Performance was in line with expectations.
The price of molybdenum fluctuated upward, and the performance for the first half of the year was at the best level in history for the same period. In the first half of the year, the cumulative average price of molybdenum oxide was 27.08 US dollars/pound of molybdenum, up 45% year on year; the cumulative average price of ferromolybdenum was 274,100 yuan/ton, up 58% year on year. The company seized market opportunities, strengthened current production and operation, adjusted the product structure in a timely manner, strictly reduced costs and increased efficiency, and performance reached the best level in the same period in history, with gross margine/net interest rate of 49.49%/30.29%.
The drop in molybdenum prices affected the company's Q2 performance. On a quarterly basis, the company's Q2 achieved revenue of 2,866 billion yuan, a year-over-year increase of 8.23%/8.40%, a year-over-year net profit of 660 million yuan, a year-over-year change of 69.23%/-20.77%, and a year-on-year increase of 69.23%/-20.77%. Gross sales margin fell 15.50 percentage points from Q1, mainly due to price declines. Among them, the price of ferromoly/ molybdenum oxide fell 27.72%/27.14%.
A leader in the molybdenum industry, with excellent resource endowments. The company is a highly influential molybdenum professional supplier in the global molybdenum industry. It has a full industry chain and deep processing equipment technology ranks among domestic peers. Its own mines include the Jinduicheng molybdenum mine and the Donggou molybdenum mine. The amount of molybdenum ore resources in Jindui City is 465 million tons, with a grade of 0.083%, and the resource volume of Donggou molybdenum ore is 471 million tons, with a grade of 0.120%.
Steel sales exceeded expectations in July, and molybdenum prices fluctuated again. The main downstream of molybdenum is the steel industry. Judging from the steel procurement situation in July, the ferromolybdenum bid volume reached 13,300 tons, exceeding market expectations. Considering that the second half of the year coincides with the peak consumption season for gold, nine, and silver ten, superposition policies have catalyzed implementation one after another. In the medium to long term, the steel industry is expected to reach the end of the cycle. Manufacturing upgrades drive a continuous increase in special steel consumption, strong consumption of special steel, and strong consumption of molybdenum used in the wind power sector. We expect the global molybdenum industry to maintain a situation of undersupply and supply/demand in 2023-2025 The compound growth rate reached 3.98%/4.37% The gap between supply and demand was 274/2.57/31,000 tons.
Investment suggestions: Considering that the company, as a leading enterprise in the domestic molybdenum industry, has fully benefited from rising molybdenum prices, we expect the company to achieve operating income of 112.03/131.83/13.953 billion yuan in 2023/2024/2025, an increase of 17.54%/17.67%/5.84%, respectively; net profit of 2931/32.49/3,513 billion yuan, respectively, with a year-on-year increase of 119.57%/10.86%/8.12%, corresponding to EPS of 0.91/1.01/1.09 yuan, respectively .
Based on the closing price of 11.48 yuan on August 18, 2023, the corresponding PE corresponding to 2023-2025E is 12.64/11.40/10.54 times, respectively. Covered for the first time, giving a “increase in holdings” rating
Risk warning:
The risk of molybdenum price fluctuations; downstream demand falling short of risk; risk that project progress falls short of expectations; model assumptions do not match reality; risk that policies exceed expectations, etc.