Key points of investment
The tungsten and molybdenum sector grew strongly. Net profit due to mother increased 10.75% year on year in 2023. In 2023, the company achieved revenue of 39.398 billion yuan, a year-on-year decrease of 18.30%; net profit to mother was 1,602 billion yuan, up 10.75% year on year; net profit after deducting non-return to mother was 1.40 billion yuan, up 13.29% year on year.
With 2024Q1, the company achieved revenue of 8.270 billion yuan, a year-on-year decrease of 3.41%; net profit to mother was 427 million yuan, a year-on-year decrease of 2.95%.
Tungsten and molybdenum business: Continued release of photovoltaic tungsten wire, increasing production and strengthening the leading edge. In 2023, the company's tungsten and molybdenum business achieved operating income of 16.463 billion yuan, an increase of 25.10% over the previous year; total profit of 2,348 billion yuan, an increase of 61.84% year on year. Excluding the impact of the company's joint ventures, profit increased 57.10% year on year. Among them, profits in tungsten mines increased year-on-year due to rising tungsten concentrate prices and higher tungsten metal recovery rates. Thanks to the competitive advantages of fine tungsten wire for photovoltaics in terms of technology, quality, scale, etc., the annual sales volume of fine tungsten wire in 2023 was 86.8 billion meters (including 76 billion meters of tungsten wire for photovoltaics), and the sales volume of 2024Q1 fine tungsten wire was 34.1 billion meters. In the field of cutting tools, the company explores overseas and high-end markets such as aerospace and drills, accounting for 30% of overseas revenue in 2023. The tungsten carbide product structure, customer structure and price system were optimized to strengthen strategic project cooperation in overseas markets, and sales and profits increased year-on-year.
New energy materials business: Overall profitability declined, and the market share of lithium cobalate remained in the leading position. In 2023, the prices of raw materials and products fell sharply due to industry overcapacity. In 2023, the company's new energy materials business achieved revenue of 17.311 billion yuan, a year-on-year decrease of 39.77%; total realized profit of 559 million yuan, a year-on-year decrease of 54.98%. The company actively stabilizes and enhances the performance advantages of lithium cobalate products. The annual sales volume of lithium cobalate products was 34,600 tons, an increase of 4.16% over the previous year, and the market share remained in the leading position; ternary material products were affected by the expansion of industry production capacity and the slowdown in downstream demand, and sales volume of ternary material products was 37,400 tons, down 19.39% year on year.
Rare earth business: Prices of raw materials continued to decline, and profitability declined year on year. In 2023, the rare earth business achieved revenue of 5.49 billion yuan, down 10.59% year on year; total profit was 144 million yuan, down 54.54% year on year. Rare earth oxides and rare earth metals are affected by falling prices of rare earth products. Although sales volume increased year on year, revenue and profit declined year on year; magnetic materials achieved sales growth in automotive main drive motors, air conditioning compressors, industrial motors, etc., but profits declined year on year due to increased market competition.
Profit forecasting and valuation
Maintain profit forecasts and maintain a “buy” rating. The company's three main businesses are working together to strengthen its leading edge by continuing to expand production of tungsten wire for photovoltaics. We maintain the 2024-2025 profit forecast and add the 2026 profit forecast. The company's net profit for 2024-2026 is 20.07, 25.11, and 2,865 billion yuan respectively, up 25.32%, 25.12%, and 14.08% year-on-year respectively. The corresponding EPS is 1.42, 1.77, and 2.02 yuan/share, respectively, and the corresponding PE is 14, 11, and 10 times, respectively.
Risk warning
Raw material price fluctuations exceeded expectations, the company's production capacity construction fell short of expectations, and downstream demand growth fell short of expectations.