Fine tungsten wire continues to grow at a high rate, and demand for ternary materials is sluggish. In 2023, the company's tungsten carbide sales volume was about 6,785 tons, an increase of 4.82% over the same period. The sales volume of cutting tools was about 50.18 million pieces, an increase of 2.75% over the same period. The sales volume of fine tungsten wire was 86.8 billion meters, an increase of 218.99%, mainly due to increased market demand and the company's optimized marketing strategy. The sales volume of lithium cobalate was 34,600 tons, up 4.16%; the sales volume of ternary materials was 37,400 tons, a decrease of 19.39%, or a slowdown in the growth rate of demand for new energy sources due to oversupply of lithium carbonate and a slowdown in demand for new energy sources. In the first quarter of 2024, fine tungsten wire continued to increase dramatically. Sales volume was 34.1 billion meters, up 141% year on year, and revenue increased 80%.
Cathode materials dragged down revenue, and tungsten and molybdenum led to an increase in overall gross margin. In 2023, the company achieved revenue of 39.398 billion yuan, a decrease of 18.30%, mainly due to a sharp drop in the volume and price of ternary materials; among them, tungsten and molybdenum revenue was 16.463 billion yuan, an increase of 25.10%, mainly due to photovoltaic tungsten wire emissions; revenue from new energy materials was 17.311 billion yuan, a decrease of 54.98%; and rare earth revenue of 5.49 billion yuan, a decrease of 10.59%. The company's overall gross margin was 16.52%, an increase of 2.91 pct, mainly driven by the high profit margin of tungsten wire. In the first quarter of 2024, the company achieved revenue of 8.270 billion yuan, a decrease of 3.41%; of these, new energy battery materials revenue was 3.299 billion yuan, a decrease of 8.02%; revenue of tungsten and molybdenum was 4,047 billion yuan, an increase of 9.81%; and rare earth revenue was 912 million yuan, a decrease of 26.66%. The gross margin for the first quarter of 2024 was 16.69%, down 0.17pct.
Expenses increased during the period, and tungsten wire led to an increase in net profit. The company's expense ratio for the 2023 period was 8.77%, up 1.67pct, of which the sales expense ratio was 0.94%, the same increase of 0.23pct, mainly due to the increase in sales staff remuneration and travel and marketing activities; the management expense ratio was 2.46%, with the same increase of 0.61 pct, mainly due to the increase in employee remuneration and travel expenses; the financial expense ratio was 1.29%, an increase of 0.33 pct, mainly due to the year-on-year decrease in exchange earnings for the current period; the R&D expense ratio was 4.08%, the same increase of 0.50pct. The company accrued impairment losses totaling 307 million yuan in the current period, compared to 584 million yuan for the same period in '22, of which asset impairment losses were 368 million yuan, a year-on-year decrease of 96 million yuan, mainly due to the reduction in asset impairment in the real estate business in the current period. The company's net profit returned to mother in '23 was 1,602 million yuan, an increase of 10.75% over the same period. Net profit attributable to mother for the first quarter of 2024 was 427 million yuan, down 2.95% from the same period and 3.17%.
Cash flow has improved markedly, and the balance ratio has declined. The company's cash to cash ratio was 0.8690, up 23.25 pcts, mainly due to the recovery of prior accounts receivable and a decrease in revenue scale; the payout ratio was 0.7851, an increase of 5.14 pcts over the same period. Taken together, the net operating cash inflow was 4.286 billion yuan, an increase of 4.646 billion yuan over the previous year. The net cash outflow from investment was $2,586 million, an increase of $64 million over the previous year, mainly due to increased expenditure on fixed asset investment and foreign equity investment. The company's balance ratio was 51.44%, down 8.21pct, mainly due to increased monetary capital and early repayment of some interest-bearing liabilities.
In May 2023, the company plans to raise additional capital to expand production of hard alloy and photovoltaic tungsten wire. The hard alloy and photovoltaic tungsten wire market is expected to expand further in the future.
Investment advice: The company's tungsten and molybdenum sector has significant advantages, the profit share continues to increase, and the company's long-term positive trend remains unchanged.
Due to the price reduction of tungsten wire, we expect the company's net profit to be 19.08, 22.46, and 2,553 billion yuan in 2024-2026, corresponding to PE of 14.8, 12.6, and 11.1 times, maintaining the “Highly Recommended” rating.
Risk warning: raw material price fluctuation risk, macroeconomic risk, project progress risk, company business risk.