Key points of investment
As a global leader in the field of light metal materials, Baowu Magnesium has complete product development and manufacturing capabilities, and the market share of major products such as magnesium, aluminum, and strontium leads the world.
The application of magnesium alloy has blossomed in many places, and automobile weight reduction is expected to open up demand. Magnesium alloy has become the largest field of magnesium demand, mainly used in automobile manufacturing, 3C, and aviation. In the context of the gradual increase in the penetration rate of new energy vehicles, weight reduction is particularly important. According to China's automobile lightweight road map, by 2025 and 2030, magnesium alloy for bicycles will reach 25kg and 45kg, respectively, and demand is expected to reach 800,000 tons and 1.71 million tons, respectively. According to Zhiyan Consulting, the total demand for magnesium in 2022 is 1.15 million tons, and the demand ceiling is expected to break through.
The company has the entire magnesium alloy industry chain, and continues to extend the downstream deep processing field. The company has a complete magnesium industry chain of “dolomite mining - primary magnesium smelting - magnesium alloy melting - magnesium alloy processing - magnesium alloy recycling”. The upstream company has three dolomite mining rights. Chaohu Yunhai has mining rights for 88.64 million tons of dolomite, with a mining scale of 3 million tons/year; Anhui Baomei has mining rights for 1.32 billion tons of dolomite, with a mining scale of 40 million tons/year; in November 2023, it won the Wutai County Dolomite Mine, with a total resource reserve of 575 million tons.
Midstream end: The company currently has a raw magnesium production capacity of 100,000 tons/year. After the Qingyang project is put into operation, the company's raw magnesium production capacity will reach 400,000 tons per year, and is expected to reach 500,000 tons in 2025. Downstream: The company is speeding up the deployment of magnesium-aluminum deep-processing products. After the Qingyang project is put into operation, the company's magnesium alloy production capacity will reach 500,000 tons per year, and is expected to reach 620,000 tons in 2025. The company also plans deep processing projects such as steering wheel frames, central control brackets, integrated die castings, and construction templates, etc., and the company's products are gradually penetrating the automotive application side.
Baowu's equity investment is expected to accelerate penetration into fields such as automobile weight reduction and hydrogen storage. In September 2023, Baosteel Metal completed a fixed increase of 21.53% of the company's shares and became the actual controller of the company. Chairman Mei Xiaoming held 16.45% of the company's shares. China Baowu has international market resources. Relying on China's Baowu's strong automotive market background, it can further accelerate the penetration of the company's products in the field of automotive lightweighting. Furthermore, in the hydrogen storage project, the company has great potential for cooperation with Baowu. If Baowu estimates 100 million tons of hydrogen metallurgy per year, it will generate an additional demand of 600,000 tons of magnesium-based hydrogen storage materials every year.
Profit forecasting and valuation
We expect the company's revenue for 2023-2025 to reach 7.91 billion, 10.49 billion, and 15.27 billion yuan, respectively; -13.1%, +32.6%, and +45.6%, respectively; net profit of $330 million, 62 million, and 1.16 billion, respectively; and -46.1%, +88.9% year-on-year, respectively; and EPS of 0.47/0.87/1.64 yuan, respectively. As a leader in the global magnesium industry, the company's growth is obvious. According to the average valuation within the industry, it gave the company 30 times PE in 2024, corresponding to the target price of 26.1 yuan, covering the first time, and giving it a buying rating.
Risk warning
Downstream demand fell short of expectations, the company's project progress fell short of expectations, and magnesium prices fluctuated greatly.