The Zhitong Finance App learned that CITIC Securities released a research report predicting that the trend of improving performance in the metal sector will continue. Currently, sector valuations are still low, and dividend levels have improved markedly. Looking ahead to the second half of 2024, the team believes it will focus on allocation opportunities in the copper, aluminum, gold, tin, tungsten, rare earth and manganese sectors, strengthened by the demand improvement logic.

Market review: The metal sector market has improved dramatically since the beginning of 2024.

Since the beginning of 2023 and 2024, the CITIC Nonferrous Metals Index has fallen 8.3%/12.6% respectively, outperforming the Shanghai and Shenzhen 300 Index by 3.4%/6.4%. Since the beginning of 2024, the ranking of the metal sector's rise and fall rate has risen from 17th place in 2023 to 5th place. In terms of segment segments, gold and copper performed the most prominently, rising 14.7%/8.3% in 2023, respectively, and further expanding to 33.2%/20.8% since the beginning of 2024. The performance of the lithium and rare earth magnetic materials index was weak, falling 35.3%/19.5% in 2023 and 18.6%/6.4% since the beginning of 2024. There are significant differences between the various segments of the metals sector. Other rare metals, aluminum, and tungsten sectors have improved significantly since 2024, with year-to-date gains of 21.9%/15.1%/13.7%, and -7.3%/0.5%/-16.7% in 2023.

Performance and valuation analysis: Performance differentiation between sectors is significant, and the valuation of the industrial metals sector is still low.

In 2023, the overall revenue of the non-ferrous metals industry increased 1.8% year on year, and net profit to mother decreased 26.8% year on year. The overall revenue and net profit of the 24Q1 sector decreased by 3.2%/27.4% year on year and +1.2%/-3.7% month on month. Revenue reversed the downward trend since 23Q2, and the decline in net profit also narrowed significantly. In terms of segment segments, the gold and copper sectors showed outstanding performance. Net profit to the mother increased 15.6%/6.0% year on year in 2023, respectively, and 27.0%/12.0% year on year in 24Q1, up 20.5%/51.2% month on month. As prices of some metals stopped falling and stabilized in 24Q1, the performance of related sectors showed a recovery trend. Net profit from the lithium/nickel-cobalt-tin antimonium/lead-zinc sector rose 47.9%/78.9%/716.2%, respectively. As of April 30, 2024, the non-ferrous metals sector had a price-earnings ratio of 20.5 times, ranking 15th for A-shares, lower than the historical average of the past five years, 27.8 times; the net market ratio was 2.2 times, ranking 10th, significantly lower than 4.3 times the historical average for the past five years. The valuation of the aluminum and copper sectors in the segment is still in a relative position, and the forecast for 2024 is only 11.7/12.5 times PE.

Position and dividend analysis: Precious metals and industrial metals have increased significantly, and dividend levels have increased significantly.

By the end of the first quarter of 2024, the market value of non-ferrous metals industry fund holdings was 145.6 billion yuan, ranking 5th among the 30 industries in the market; the market value of positions accounted for 5.3% of the market value of fund stock investment, up 1.6 pcts from the end of 2023. The share of holdings in the industrial metals/precious metals/energy metals sector was 1.1%/2.9%/1.4%, respectively. Compared with the end of 2023, the changes were +0.1/+1.6/-0.04pct, respectively. The precious metals and industrial metals sector showed an increasing trend, and the energy metals sector reduced allocation trend. The overall dividend ratio of the non-ferrous industry reached 34.8% in 2023, up 10.8 pcts from 24.0% in 2022; the gap in the overall dividend ratio compared to all A-shares narrowed from 17.0 pcts to 7.6 pcts.

Metals industry outlook for the second half of 2024: Supply disturbances continue to be intense, and demand recovery will drive the next round of growth.

Since 2024, the metal sector market has mainly been catalyzed by supply disturbances. Prices of commodities such as copper, tin, and tungsten have risen sharply. Furthermore, the safe-haven offline precious metals sector continues to be strong. Looking ahead to the second half of 2024, the supply disturbance logic is expected to continue, but as domestic economic recovery is confirmed and policies are superimposed on real estate, automobile and other industries, we expect the impact of demand-side logic on the metal sector to intensify. In terms of allocation, it is recommended to continue to focus on industrial metals, precious metals, and small metal sectors with prominent price increases, and focus on allocation opportunities in the copper, aluminum, gold, tin, tungsten, rare earth and manganese sectors.

Risk Factors:

Risk of a sharp drop in metal prices; risk of domestic economic recovery falling short of expectations; risk of overseas economic recession; risk of interest rate cuts falling short of expectations; risk of upstream supply growth exceeding expectations; risk of enterprises operating overseas assets; risk of enterprises not progressing as expected in building new production capacity; risk caused by changes in industry policies exceeding expectations; risk of severe safety supervision and environmental protection situations exceeding expectations.

Investment Strategy:

In the first quarter of 2024, the performance and market performance of the metal sector continued the divergent trend in 2023. The leading edge of the gold and copper sector expanded, and the bottom of the battery metal sector fluctuated at the bottom, but the decline in overall profit in the sector narrowed. With the sharp rise in prices of various metals since the second quarter of 2024, we expect the trend of improving the performance of the metal sector to continue. Furthermore, the current sector's valuation is still low, and the level of dividends has improved markedly. Looking ahead to the second half of 2024, we believe we will focus on allocation opportunities in the copper, aluminum, gold, tin, tungsten, rare earth and manganese sectors, strengthened by the demand improvement logic.