Naipu Mining Machinery released its report for the first quarter of 2024: the company's various businesses developed steadily, achieving operating income of 248 million yuan (+46.97% YoY); net profit to mother of 39 million yuan (+403.01% YoY); net profit without return to mother of 38 million yuan (YoY +373.75%).

Key points of investment

The company's products have benefited from copper ore capital expenditure and copper ore grade decline. Under the current resource cycle, copper prices have continued to rise and inventory levels have been low in the past 20 years. Copper mining companies have a strong will to increase capital expenditure. In March 2024, LME copper inventory was only 113,000 tons, which is at a historical low level in the past 20 years. At the same time, the average price of LME copper was 8,676 US dollars/ton in March, which is a relatively historical high. Meanwhile, the decline in copper grade led to an increase in demand for mineral processing spare parts. For example, between 1999 and 2016, the average copper grade in Chile fell by more than half, from 1.41% to 0.65%. The grade of copper ore continues to decline as mining means that the relative scale of mining and grinding operations required is larger, and the demand for beneficiation spare parts is increasing, that is, processing more ore to obtain the same fine copper.

Contract orders are steadily increasing, and production capacity is gradually being released

In the first quarter of 2024, the total amount of contracts signed by the company was 238 million yuan, a year-on-year increase of 9.68% over the same period in 2023 excluding EPC projects. Among them, the amount of overseas contracts signed was 128 million yuan, an increase of 54.6% over the exclusion of EPC projects in the same period in 2023. Judging from the product type structure, the contract amount for mining spare parts was RMB 211 million (+63.90%); the contract amount for mineral processing equipment was RMB 15 million (-76.23%). In 2023, the company's annual contract amount reached 1,225 billion yuan, providing certainty for 2024 results. The first phase of the company's project in Zambia will be put into operation in 2024. In addition, production capacity in Zambia Phase II, Serbia, Peru, etc. is also being planned. The gradual release of production capacity provides a solid guarantee for the subsequent growth of the company's performance.

Benefiting from a high increase in overseas travel, the company's profitability has increased significantly

In the first quarter of 2024, the company's comprehensive gross margin was 40.41% (+4.9pct year on year), of which the gross margin of rubber composite wear-resistant spare parts, which accounted for 52.15% of revenue, was 43.65% (+5.73pct year on year), and the gross margin of mineral processing system solutions and services, which accounted for 31.01% of revenue, was 31.33% (+9.61 pct year on year). The main reason for the increase in gross margin was the high gross margin of the overseas market business. The company's overseas business continued to expand. Overseas revenue for the first quarter was 162 million yuan (+116.49% over the same period last year). As the company focuses on developing regional markets with developed mining industries along the Belt and Road, the company's overall gross margin is expected to increase further.

There is still a lot of room for improvement in the penetration rate of wear-resistant spare parts

Rubber composite wear-resistant spare parts are the core products in mineral processing equipment. They have the advantages of long product life, good energy efficiency, easy installation, high fault tolerance, and good environmental protection. Currently, the penetration rate of composite spare parts is only 15%. It is expected that with the company's production capacity going overseas and sales promotion, the penetration rate of the company's wear-resistant spare parts still has a lot of room to improve, providing a strong guarantee for the steady growth of the company's subsequent performance.

Profit forecasting

It is predicted that the company's revenue for 2024-2026 will be 13.11, 14.68, and 1,758 billion yuan, respectively, and EPS will be 1.50, 2.07, and 2.55 yuan respectively. The current stock price is 26.7, 19.3, and 15.7 times PE, respectively. Considering that copper mining companies are willing to increase capital expenditure, the penetration rate of wear-resistant spare parts is expected to increase further in the future. The company will benefit from a high increase in overseas sales and is expected to achieve a “recommended” investment rating.

Risk warning

The risk of changes in the macroeconomic environment and the operating environment of related industries; market competition risk; risk of price fluctuations of major raw materials; risk of overseas operation; risk of customer concentration; risk of exchange rate fluctuations.