Key points of investment
Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved operating income of 39.398 billion yuan, -18.30% year-on-year, achieved net profit of 1,602 billion yuan, +10.75% year-on-year, and realized net profit of 1.40 billion yuan without return to mother, +13.29% year-on-year.
Q4 2023 achieved operating income of 9.870 billion yuan, -12.71%/-8.59%; realized net profit attributable to mother/ net profit of 4.41/336 million yuan, +215.00%/366.67% YoY, and +19.19%/-2.04% month-on-month. In Q1 2024, we achieved operating income of 8.270 billion yuan, -3.41%/-16.21%; realized net profit attributable to mother/net profit excluding net profit of 427/321 million yuan, -2.95%/-23.21% year-on-year, and -3.17%/-10.42% month-on-month.
The amount of tungsten filament used in photovoltaics increased in 2023. The improvement in the company's performance in 2023 was mainly due to the overall improvement in the tungsten and molybdenum business, and the sharp increase in deep-processing products, especially tungsten wire for photovoltaics. The company's tungsten and molybdenum and other non-ferrous metal products business achieved gross profit of 4.474 billion yuan, a year-on-year increase of 43.37%, and a gross margin of 28.73%, +4.04pct year-on-year. (1) The company's sales volume of fine tungsten wire reached 86.8 billion meters in 2023, of which the sales volume of tungsten wire for photovoltaics reached 76 billion meters, and the net profit of the related subsidiary Xiamen Honglu reached 833 million yuan, an increase of 165.96% over the previous year; (2) The price of tungsten concentrate rose 4.26% in 2023 compared to 2022. The subsidiaries Xingluokeng, Duchang Jinding, and Luoyang Luyu achieved net profit of 1.87/1.56/ 164 million yuan, an increase of 7.23%/4.91%/12.11% year-on-year. (3) Cutting tool products are deeply involved in the middle and high-end markets. Sales revenue increased year-on-year, and profits increased dramatically. The subsidiary Luoyang Jinlu achieved net profit of 75 million yuan, an increase of 56.78% over the previous year.
Market competition is intensifying, and the battery materials/rare earth business is under pressure. In 2023, the company's battery materials business contributed 1,351 billion yuan in gross profit, down 44.30% year on year, gross margin down 0.60 pct. Sales volume of lithium cobalate/ternary materials reached 346./ 37,400 tons, +4.16%/-19.39% year on year, and prices decreased by 43.74%/35.25% year on year. The rare earth business contributed 345 million yuan in gross profit, down 49.49% year on year, rare earth oxide/ rare earth metals/ magnetic materials sales volume +15.30%/11.68%/17.45% year on year, and praseodymium oxide/ neodymium iron boron prices fell 35.89%/30.58% year on year.
The rare earth smelting and real estate business was divested, and overall growth remained high in Q1 2024. (1) In 2024, Q1's tungsten and molybdenum and other non-ferrous metals business achieved total revenue/profit of 4,047/ 540 million yuan, with a slight decrease in performance mainly due to a certain year-on-year decline in production, sales volume and price of molybdenum trioxide, a by-product of tungsten smelting; fine tungsten wire products remained high. Q1 achieved a total sales volume of 34.1 billion meters, an increase of 141% year on year, and sales revenue increased 80% year on year. (2) The battery materials business achieved total revenue/profit of 32.99/114 million yuan, -8.02%/5.31% year over year. Sales volume of ternary materials/lithium cobalate was 1.59/0.84 million tons, +249%/62% year over year. Prices fell 49.29%/60.27% year on year, and the volume increase basically made up for the price drop to a certain extent. (3) The rare earth business achieved total revenue/profit of 9.12/40 billion yuan, -8.02%/-64.79%. Mainly due to integration with China Rare Earth Group, the atomic company Longyan Rare Earth Company and the former Jinlong rare earth smelting and separation business were no longer included in the scope of the consolidated statement. Combined with falling product prices, the net profit dropped sharply. (4) The real estate business achieved total revenue/profit of 0.12/116 million yuan, or 73.72% /+168 million yuan, mainly due to the completion of the disposal of Chengdu Tengwangge Real Estate and Chengteng Property shares, and confirmed investment income of 145 million yuan.
Investment advice: Since 2024, the price of tungsten and molybdenum has continued to rise, supply continues to be tight, the company's cutting tool business continues to optimize the product structure, production capacity has been steadily increasing, and the 100 billion meter photovoltaic tungsten wire production line project is under construction, which is expected to continue to drive the company's high profit growth. We expect the company to achieve operating income of 405.48/470.94/49.543 billion yuan in 2024/2025/2026, up 2.92%/16.14%/5.20% year on year; net profit to mother will be 19.96/27.21/2.803 billion yuan respectively, up 24.62%/36.32%/3,01% year on year, corresponding EPS of 1.41/1.92/1.98 yuan respectively.
Based on the closing price on May 13, 2024, the corresponding PE corresponding to 2024-2026E was 14.32/10.51/10.20 times, respectively. Maintain the company's “buy” rating.
Risk warning:
Risk of falling metal prices, project progress falling short of expectations, risk of policy changes, risk of production and sales falling short of expectations, etc.