Introduction to this report:

The leader in the tungsten carbide industry actively lays out the upstream resource side, and the advantages of integration will be highlighted. With downstream demand gradually picking up, the company's performance is expected to improve as blade tool production capacity is released.

Key points of investment:

Maintain an increase in holdings rating. In 2023/2024Q1, the company's net profit to mother was 485/064 million yuan, respectively, -9.36%/-35.97% year-on-year. Considering the slow recovery in demand, the 2024-2026 EPS forecast was adjusted to 0.40/0.48/0.55 yuan (originally 0.62/0.72/-yuan), respectively. Referring to the same industry, and considering that high-quality mines will be injected, the company will be given 32 times PE in 24 years, and the target price will be raised to 12.8 yuan (originally 12.14 yuan) to maintain an increase in holdings rating.

Consumption was weak in 2023, industry competition intensified, raw material prices increased, and profit margins were squeezed in both directions.

In 2023, the company's hard alloy industry product revenue and gross margin both declined compared to 22. Among them, blade business revenue fell 7.85% to 3,057 billion yuan, gross profit decreased 10.25% to 1,027 billion yuan, alloy product revenue fell 2.64% to 3.431 billion yuan, and gross profit decreased 3.78% to 484 million yuan. However, in 23Q4, the company's revenue and gross margin improved, driving the company's performance year-on-month growth.

2024Q1 expenses were well controlled, but the product's gross margin declined, hampering performance. The average price of 2024Q1, APT/tungsten carbide powder was 18.3/275,500,000 per ton, +2.15%/+2.34% month-on-month. The price of raw materials increased, product costs increased, and the company's overall gross margin fell to 14.16%, -4.8 pct month-on-month, which dragged down performance. However, in 24Q1, the company's expenses were well controlled, and the three fees fell by 20.43% to 225 million yuan.

High-quality mines are yet to be injected. The advantages of integration are prominent. As demand picks up, the company's performance is expected to improve.

In 2023, the company produced about 14,000 tons of hard alloy, ranking first in the world. The production of CNC blades was about 140 million pieces, accounting for about 20% of the total domestic output. Sales of products such as CNC blades and drills bucked the trend. In the future, with the injection of Shizhuyuan tungsten ore, an increase in resource guarantee capacity, a recovery in downstream demand, and the release of blade and tool production capacity, the company's performance is expected to improve.

Risk warning: The recovery of the manufacturing industry falls short of expectations, project progress falls short of expectations, etc.