The operating income of 2023H1 was 1,724 million yuan, an increase of 2.87%; net profit of Gimu was 86 million yuan, a decrease of 38.99%. Among them, Q2's quarterly revenue was 901 million yuan, a year-on-year increase of 12.25%; net profit of Gimu was 51 million yuan, an increase of 45.71% over the previous quarter.
Sales of tungsten powder, blades, etc. have increased rapidly, and the release of ultra-fine tungsten carbide powder is imminent. 2023H1 achieved sales volume of 2211.08 tons of tungsten powder, an increase of 19.21%; sales of 2620.50 tons of tungsten carbide powder, an increase of 2.29%; sales of 9.291,400 coated blades, an increase of 31.64%; and sales of thermal spray powder 229.94 tons, an increase of 32.20%. The increase in sales volume of the company's powder and blade products is mainly due to the company making full use of the advantages of product quality and stability to actively expand the market. In addition, the company's ultra-high performance tungsten powder intelligent manufacturing project plans to add 5,000 tons/year of ultra-fine tungsten carbide powder production capacity. Currently, the new product is in the sample delivery and trial stage, and future production capacity will gradually be released.
Sales volume drives revenue growth, and weak demand drags down gross profit margins. The company's 2023H1 tungsten products (ammonium paratungstate, tungsten powder, tungsten carbide powder, hard alloy, thermal spray powder) revenue was 1,612 billion yuan, an increase of 5.76%, mainly due to an increase in sales of products such as powder and blades. The company's gross margin during the reporting period was 14.77%, down 3.2 pct. Among them, the gross profit margin of tungsten powder was 7.81%, down 3.16 pct; the gross profit margin of tungsten carbide powder was 7.92%, down 3.38 pct, mainly due to strong tungsten concentrate prices and poor downstream demand; and the gross profit margin of hard alloy was 15.02%, up 1.04 pct, mainly due to falling blade costs and increased sales of high-value-added blades in Ganzhou.
Expense rates increased during the period, and net profit increased significantly over the previous month in Q2. The cost rate during the 2023H1 period was 8.90%, up 1.00 pct. Among them, the sales expenses rate increased by 0.52 pct, mainly due to employee remuneration, travel expenses for market development, business promotion expenses, and business hospitality expenses; management expenses, R&D expenses, and financial expenses increased by 0.12, 0.23, and 0.13 pct, respectively. The company's impairment losses totaled 119 million yuan, which was basically the same as the previous year.
Overall, in 2023H1, the company achieved net profit of 86 million yuan, a decrease of 38.99%. Among them, Q2 achieved net profit of 51 million yuan, an increase of 12.25%, and an increase of 45.71% over the previous quarter, improving for the second consecutive quarter.
Cash flow has improved and the balance ratio has risen. The company's 2023H1 revenue ratio was 0.8262, an increase of 9.34 pct, mainly due to an increase in cash payments; the payout ratio was 0.7860, an increase of 1.12 pct, mainly due to an increase in raw material prices.
Overall, net cash outflow from operating activities was 115 million yuan, a year-on-year decrease of 108 million yuan; net cash outflow from investment activities was 210 million yuan, a year-on-year decrease of 41 million yuan, mainly due to a decrease in investment in technology reform projects. The company's balance ratio was 59.45%, up 1.31 pct from the end of last year, mainly due to an increase in short-term loans.
Investment suggestions: The company actively expands the market to achieve sales growth of major products. Performance improved month-on-month for two consecutive quarters, compounded by demand or marginal improvements in the second half of the year, and profits are expected to rise further. Considering that demand for the first half of the year was lower than expected, the company's net profit is estimated to be 216, 320, and 407 million yuan in 2023-2025. The corresponding PE is 32.0, 21.6, and 17.0 times, maintaining the “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.