With the introduction of the “triple nuclear power” declaration, global nuclear power development gradually returned to a high level of prosperity in '23. Demand for uranium as a fuel for nuclear power picked up, and prices rose along the way.

The overall recovery of the industry is certainly more investor-friendly, but how to seize opportunities with long-term logic is not easy. Companies that can maintain strong performance in the current external environment are more worthy of attention.

Among them, CNNC International (02302.HK) achieved both gross and net profit growth in 2023, and the profit situation continued to improve, which may be able to meet the expectations of the market.

Both gross profit and net profit increased, and profitability continued to increase

Looking at the 2023 financial report, CNNC International's revenue was HK$581 million, a year-on-year decrease of 35.9%. The decrease in revenue was mainly due to a decrease in uranium products traded with independent third parties.

Looking further,The root cause of the decline in revenue is still mainly due to the negative impact of the macro environment.

Interest rates rose as a result of the Federal Reserve's interest rate hike last year, driving up borrowing costs involved in international trade financing. Therefore, traders of uranium products preferred to hold currency, which ultimately led to a decrease in CNNC's overall revenue last year.

HoweverMore positive signs can be found in financial reports. First, CNNC International's profitability is quite impressive.

Among them, gross profit in 2023 was HK$127 million, up 23.60% year on year. The corresponding gross margin was about 21.9%, up about 10.5% year on year. Net profit to mother was approximately HK$106 million, up 31.51% year on year. The corresponding net profit margin to mother was about 18.3%, up about 9.4% year on year.

Overall gross margin improved thanks to significant improvements in the uranium trading market in the second half of the year, as well as benefits from physical delivery. Since physical delivery requires arranging logistics services and is more complicated than ordinary book transfer methods, companies can demand better profits, which boosts gross margin improvement.

Then, looking back at 2021-2023, you can seeCNNC's profitability is in the midst of a continuous upward trend.

In terms of gross profit, the past three years were 20.61 million, HK$103 million, and HK$127 million, respectively, with a compound annual growth rate of 87%; in terms of net profit to mother, the last three years were 2,389 million, 808.43 million, and HK$106 million, respectively, with a compound annual growth rate of 256%.

It can be seen that CNNC International's strategic layout has continued to deliver on operating results, and its market position has been further strengthened. This also means that CNNC International is on the path of sustainable profitable growth, which indicates its future development potential.

At present, CNNC International's risk incidents of delayed delivery due to logistics have basically been eliminated, and related risks will not exist for a long time. In addition, it is already foreseeable that the Federal Reserve will enter a cycle of interest rate cuts, and the negative performance factors of CNNC International will gradually dissipate, and the certainty of subsequent growth will be greatly enhanced.

For investors, their focus on CNNC International has once again focused on its future growth space.

Industry prosperity is rising, and space for CNNC international growth opens up

Uranium prices began an accelerated upward pattern last year. How will uranium prices perform in the long run? The key to determining the price of uranium is the influence of supply and demand.

On the demand side, uranium is a naturally radioactive element, and the vast majority of it is used as fuel for nuclear power generation. Currently, the world's urgent need for clean energy transformation is driving the number of nuclear power installations to continue to rise, thus driving a sharp increase in demand for natural uranium.

The 28th United Nations Climate Change Conference held in Dubai last year incorporated nuclear energy into the strategic plan to combat climate change, and at the first Nuclear Energy Summit this year, 32 countries signed a joint declaration in an effort to mobilize public and private investment for more nuclear power projects.

According to International Atomic Energy Agency data, as of January 2024, there were 413 operational nuclear power reactors worldwide, with a total net installed capacity of more than 371 GW.

According to the agency's new annual nuclear power outlook, by 2050, the world's installed nuclear power capacity will reach 890 GW, which means that starting in 2050, the annual demand for uranium will nearly double compared to the present.

According to some data, 1 GW of nuclear power will consume 170 tons of uranium per year. In other words, by 2050, the annual demand for nuclear power will reach 151,300 tons of uranium.

What is easier to overlook is that demand for AI computing power is exploding, which will bring massive demand for electricity, and nuclear energy, as a stable and efficient energy source, future nuclear power construction may accelerate as a result, further boosting expectations for uranium demand.

Specifically for the Chinese market, the “14th Five-Year Plan” energy plan indicates that “by 2025, the installed operating capacity of nuclear power will reach about 70 million kilowatts.” This means that the share of nuclear power generation has a lot of room to increase in the future, and China will continue to be a country with a large demand for uranium for a long time.

So overall, benefiting from the demand stimulus in the downstream industry, the long-term rise in uranium demand is becoming more and more certain.

In contrast to demand, uranium enrichment projects are relatively limited in terms of supply. Earlier, institutional research reports pointed out that the world's major uranium projects basically lowered production expectations last year, and global production declined overall, and only gradually recovered slowly after 2024. Meanwhile, starting in 2028, production mines will enter a peak period of production cuts and decommissioning, and the supply of uranium will gradually begin to decline.

Therefore, as supply and demand recede, the balance between supply and demand for natural uranium will develop in the direction of “shortage”.

CNNC International, as an enterprise developing trade in uranium products upstream, is expected to become the main beneficiary of this logical catalyst.

On the one hand, CNNC International still has abundant uranium products awaiting release, which will drive continued growth in the future; on the other hand, CNNC International uses CNNC's advantages in the field of nuclear power to target China's broad downstream market, and has the ability to expand its coverage in overseas markets and seek high-quality uranium resource projects, thereby broadening its own profit margins.

Looking at the changing trends in the macro environment, as the Federal Reserve's interest rate cut cycle opens, borrowing costs will gradually decrease, and investor activity in the uranium spot market will increase, which will promote more offshore trade opportunities for buyers and sellers. In other words, CNNC's international trade in uranium products will benefit from the macroeconomic environment and be further improved.

epilogue

The nuclear power industry is gradually recovering to a high level of prosperity, and global demand for clean energy transformation will accelerate the continuous increase in installed nuclear power capacity. Currently, the supply and demand gap for natural uranium is widening, and players in the industry can explode stronger in the upward cycle.

However, CNNC International relies on CNNC to have a natural advantage. Based on its current leading position in the market, the upstream part of the nuclear power industry can often have 40-50% profit in the industrial chain. CNNC International is expected to reap greater performance flexibility, and its future value will once again win market revaluation.