After almost a year of absence, Nanfang Manganese (01091), the largest manufacturer of electrolytic manganese dioxide in China, finally returned to the capital market after the “first day” of the lunar calendar.
However, it was not “sunshine shining brightly” that greeted the Southern Manganese Industry on the first day of the resumption of trading, but rather cold “ice and rain.” The Zhitong Finance App noticed that on February 5, the first day that Nanfang Manganese officially resumed trading after being suspended on March 30, 2023, Nanfang Manganese's stock price opened low and went low. At one point, the intraday decline was more than 63%. By the close of the day, Southern Manganese reported HK$0.196, a decrease of 60.4%. The next day, the Southern Manganese Industry continued to open low, and the closing still fell by more than 10%.
Prolonged suspension of trading due to business “abnormalities”
The suspension of trading of Southern Manganese began at the end of March 2023, which coincided with the annual reporting season for Hong Kong stock companies. In the process of auditing its operating data by PricewaterhouseCoopers PricewaterhouseCoopers of Southern Manganese, the company's Ghanaian manganese ore trading business was described as “abnormal”. The accounting firm recommended that the Audit Committee take the lead in forming an independent investigation committee, and that the committee appoint an independent third party investigation agency to assist the committee in investigating certain details of the company's manganese ore trading business in Ghana.
Affected by the above matters, Southern Manganese had to delay publication of its 2022 annual results and suspended trading on March 30, 2023.
Looking through history, the Zhitong Finance App found that the Southern Manganese Industry has deep ties with trading partners engaged in manganese ore mining and production in Ghana.
According to information, manganese ore is mainly divided into manganese oxide ore, manganese semi-carbonate ore, and manganese carbonate ore. Ghana is one of the few countries in the world that produces high-grade manganese carbonate, and the mine owner is the only company engaged in the mining and production of Ghanaian manganese ore. Many years ago, Southern Manganese tried to acquire the miner's holding company but to no avail, but the company was later acquired by another company in May 2017.
At the end of 2020, Nanfang Manganese signed an exclusive sales agency contract with the mine owner for the southern region of China (excluding the Manganese Triangle region). According to the contract, Southern Manganese is required to purchase a minimum amount of manganese ore from miners within three years up to December 31, 2023.
However, when the accounting firm currently audited Southern Manganese's financial and operating data, the firm raised a number of objections and investigation suggestions on Southern Manganese's manganese ore trading business in Ghana, including anomalies and customers found in the confirmation letter sent by the supplier; providing further supporting documents to confirm transactions between suppliers and customers; and the commercial basis for the 540 million yuan (RMB, same unit) advance payment made by the supplier as of December 31, 2022.
After that, after nearly a year of repeated negotiations, the Southern Manganese Industry finally fully resolved the concerns raised by the aforementioned accounting firm and agreed on all other guidelines for resuming trading.
However, although Southern Manganese returned to the capital market this winter, what awaits the company seems to be a belated journey to make up for the decline.
Weak fundamental growth, “fading” investment value
After the return, the growth performance of the southern manganese industry on the performance side was quite different from that of more than a year ago.
Looking back on track record, in 2018-2022, the revenue of Southern Manganese was HK$6.736 billion, HK$5.802 billion, HK$4.368 billion, HK$12.831 billion, HK$16.032 billion, net profit to mother of HK$331 million, -HK$202 million, HK$438 million, HK$455 million and HK$336 million respectively. Judging from the trend of changes in core financial data, the performance of Southern Manganese Industry is unstable, and 2022 has shown obvious characteristics of increasing revenue and not increasing profit.
In the first half of 2023, Southern Manganese's revenue and net profit to mother were HK$7.733 billion and HK$135 million respectively, down 14.2% and 64.8% from the same period last year, and performance declined across the board.
In terms of business structure, Nanfang Manganese's main business is investment holding, which specifically includes manganese ore mining, ore processing and downstream processing operations in China and Gabon, as well as trade in ore, manganese ore alloys and related raw materials.
Taking the data for the first half of 2023 as an example, Southern Manganese's revenue was mainly contributed by other businesses. The revenue from this business during the period was HK$4.608 billion, accounting for about 59.6%. According to reports, the company's other businesses mainly include trading in a number of commodities, such as manganese ore, electrolytic manganese, silicon-manganese alloys and non-manganese metals, waste sales, leasing investment properties and leasing land, and investing in companies engaged in trading business and non-manganese metal mining and production.
In addition to the above businesses, the businesses that contributed revenue to the Southern Manganese Industry during the 23H1 period also included businesses such as manganese ore mining, Gabon, production of electrolytic manganese metal and alloy materials, and battery material production. During this period, these businesses accounted for 0.9%, 6.7%, 20.9%, and 12% of revenue, respectively.
Although the business structure is complex, the commercial layout of the Southern Manganese Industry mainly revolves around the raw material manganese metal. Judging from downstream applications, manganese is not only the basic raw material for the steel industry, but also the main raw material for manganese-based batteries. Among them, the steel industry is the main downstream industry of the southern manganese industry.
However, in the past two years, due to insufficient downstream demand due to the economic recovery process falling short of expectations, the balance between supply and demand in the previously popular new energy industry has been disrupted, and the prosperity of manganese ore and its extended manganese deep processing industry chain has been greatly affected. Taking the electrolytic metal manganese product as an example, the average selling price of this product of 23H1 Southern Manganese Industry fell 41% to HK$14,695 per ton; during the same period, the average selling price of the division's electrolytic manganese dioxide (battery material) also fell 3% to HK$15,916.
Fundamentals have lost the “aura” of growth, and what is not alone is that investment sentiment in the capital market has taken a sharp turn since the beginning of 2024. This has further weighed the downward pressure on the stock price of the Southern Manganese Industry. Taking Hong Kong stocks as an example, the cumulative decline in the Hang Seng Index reached 9.16% in January this year, compared to -13.82% for the full year of 2023. The road is still long. In the midst of this, the Southern Manganese Industry lacks imagination in fundamentals, and there is a need to make up for the decline in stock prices. I'm afraid the outlook is still difficult to be optimistic.