Investment logic
A scarce source of molybdenum. The company is the first manufacturer specializing in molybdenum listed on A-shares in China, Shaanxi State-owned Holdings. In 2023, the company's molybdenum related business accounted for 101% of gross profit; thanks to excellent mining resources, the company's gross margin level of each molybdenum product reached 53%; since 2020, molybdenum entered a boom cycle, and the company's net profit reached 157% in 3 years.
The energy and shipping boom continues, and the supply gap continues to widen. 1) Demand dismantling: Molybdenum is mainly used in stainless steel and medium and heavy plates. We estimate that domestic demand for medium and heavy plate, 316, and duplex stainless steel will account for 36%, 23%, and 13% respectively in 2023. Thanks to the continued boom in shipbuilding and energy (thermal power, oil and gas and chemicals) and steel structures, we expect global demand for molybdenum to reach 345,000 tons in 2026, with a 3-year CAGR of 5%; among them, the energy, steel structure and shipbuilding sectors will account for 37%, 32%, and 7% respectively.
2) Supply sorting: The main overseas incremental projects are the Quebrada Blanca Copper Mine Phase II project, and the domestic main ones are Julong Copper Phase II, Jide Molybdenum Mine, etc.; we estimate that the global supply of molybdenum in 2026 will be 303,000 metal tons, and the 3-year CAGR will be 4%. Molybdenum supply will be tight for a long time, with gaps of -3.7/-3.8/-42,000 tons, respectively, and molybdenum prices will gradually rise.
Controlling mines are rich in resources, and participating in mines increases profits. In addition to holding two high-quality mines, Jinduicheng (100% shareholding) and Donggou Molybdenum Mine (65% shareholding), the company estimates a combined output of nearly 23,000 tons and an equity output of nearly 19,000 tons in 2023; it also participated in the Jide Molybdenum Mine (holding 18.3% of the shares, currently undergoing production) and Shapinggou Molybdenum Mine (holding 10% of the shares, which is expected to be put into operation in 2027); the participating mines are expected to increase equity production by more than 30,000 tons after production. We estimate that in 2023, the company's molybdenum production will account for 9%/20% of global and national molybdenum production respectively.
The purest, most scarce, and most elastic molybdenum resource target. We selected three companies, Luoyang Molybdenum Industry, Zijin Mining, China Railway, and Gold and Molybdenum Co., Ltd. to compare. Gold and Molybdenum shares all performed better than their peers in terms of molybdenum's profit share and commodity price linkage; even if molybdenum prices were in a historically high position, when molybdenum prices rose 50%, net profit to mother increased 92%, corresponding to PE 7 times, the company's profit elasticity was still quite impressive.
High dividends continue. The company's dividend ratio in 2023 was 42%; in 2008 to 2023, the company's cumulative dividend ratio was 75%, which is significantly higher than the average of Shenwan Nonferrous Metals Industry; the company's dividend rate in 2023 was 4.2%. Strong profits and large dividends resonate, and the investment value is evident.
Profit forecasts, valuations, and ratings
We estimate that the company's revenue for 2024-2026 will be 120/125/13.4 billion yuan, and the net profit due to mother will be 33.5/3.7 billion yuan, EPS will be 1.01/1.08/1.14 yuan, respectively, and the corresponding PE will be 11.9/11.3/10.6 times, respectively. Considering the company's historical valuation level in the industry, the company was given 17 times PE in 2024, with a target price of 17.17 yuan, which covered the “buy” rating for the first time.
Risk warning
Product price fluctuation risk; safety and environmental management risk; element substitution risk.