The company's 3Q23 performance is basically in line with our expectations
The performance of the tungsten and molybdenum sector of 1-3Q was strong, and the rare earth and new energy materials sectors were slightly dragged down. The 3Q23 performance improved month-on-month, and the performance was basically in line with our expectations. The 1-3Q company achieved revenue of 29.53 billion yuan, -20.0% year-on-year; net profit of 1.16 billion yuan, -11.1% year-on-year. In 3Q23, the company achieved revenue of 10.8.0 billion yuan, +6.2% month-on-month, and net profit of 370 million yuan, +5.3% month-on-month.
Benefiting from the release of demand for photovoltaics, the tungsten and molybdenum sector grew strongly, with fine tungsten wire sales in the first three quarters +214% year on year. According to the announcement, 1-3Q's tungsten and molybdenum business revenue was 12.38 billion yuan, +25.6% year-on-year, and realized a total profit of 1.67 billion yuan, +43.4% year-on-year. Among them, photovoltaic fine tungsten wire grew strongly, achieving sales volume of 54.6 billion meters in the first three quarters, sales volume +214% year over year, and revenue +178% year on year.
Affected by the sharp drop in product prices, the rare earth and new energy materials sectors underperformed, but sales of magnetic materials achieved a 30% year-on-year increase. In the rare earth sector, revenue in the 1-3Q period was 3.92 billion yuan, -12.6%; total profit was 110 million yuan, -53.8% year-on-year, mainly due to price reductions in the volume of rare earth oxides and rare earth metal products. Among them, magnetic materials benefited from demand for automobiles, air conditioners, etc., with sales volume of 5,488 tons, +30% over the same period last year. In the new energy materials sector, revenue for the 1st to 3Q was 13.12 billion yuan, -41.6% year on year; total profit was 450 million yuan, -54.9% year on year, mainly due to the slowdown in downstream demand and falling prices. Shipments rebounded in the third quarter, and the decline in sales volume narrowed. The real estate business had revenue of 110 million yuan in the 1-3 quarter, and total profit of -110 million yuan, a year-on-year decrease of 28.35 million yuan.
Development trends
The company plans to raise no more than 4 billion yuan to invest in cutting tools, photovoltaic tungsten wire, and tungsten and molybdenum ore to further strengthen the growth base of tungsten and molybdenum business. According to the announcement, in 2022, the company produced 48.77 million pieces of cutting tools, 30 billion meters of fine tungsten wire, and 24,000 tons of APT. The company plans to raise 4 billion yuan to invest in related projects. The overall plan is to build new projects with an annual output of 10 million transposable blades, a total of 5.8 million tools, 100 billion meters of photovoltaic tungsten wire, 3,200 tons of tungsten concentrate, etc., and plans to build recycling capacity for tungsten waste and rare earth waste (see chart 3-5 for details).
The company's upstream and downstream industrial chain cooperation in the field of rare earths and ternary materials continues to deepen. In terms of vertical cooperation, Xiamen Tungsten and China Rare Earth Group signed a cooperation framework agreement to establish two joint ventures. Xiamen Tungsten holds 49% of the shares to jointly operate Xiamen Tungsten's rare earth mine and rare earth smelting and separation industry, and plans to invest in a new separation capacity of 5000-10,000 tons. In terms of horizontal cooperation, the company announced that it plans to establish a three-yuan cathode material production line with an annual output of 40,000 tons through a joint venture of 10.2 million euros (51% of shares) by the holding subsidiary Xiatung Xinneng in Europe to establish a three-yuan cathode material production line with an annual output of 40,000 tons.
Profit forecasting and valuation
Considering the decline in prices of rare earths and other products in the first three quarters, we lowered the company's net profit in 2023 by 14.1% to 1.66 billion yuan, and introduced a new forecast value of 1.94 billion yuan for 2024. The current stock price corresponds to a price-earnings ratio of 15/13 times 2023-2024. Maintaining an outperforming industry rating, keeping the target price of 20.6 yuan unchanged, corresponding to a price-earnings ratio of 18/15 times in 2023-2024, there is room for growth of 18.1% compared to the current one.
risks
Downstream demand falls short of expectations; risks posed by alternative technologies; risk of commodity price fluctuations.