The full name of the leading enterprise company in the molybdenum industry with domestic leader+international leader and comprehensive development of the full spectrum layout is “Jinduicheng Molybdenum Industry Co., Ltd.”. It is a leading domestic molybdenum industry leader and a highly influential pure molybdenum supplier in the global molybdenum industry. The scale of molybdenum production and operation ranks among the highest in the world. On the resource side, the company owns the Shaanxi Jinduicheng Molybdenum Mine and Henan Ruyang Donggou Molybdenum Mine, which is one of the world's top six primary molybdenum deposits, and has successively acquired 10% interest in Shapinggou Molybdenum Mine and 18.3% interest in Jide Molybdenum Mine to provide a resource guarantee for sustainable development; in terms of specific business, the company mainly involves three series of products: molybdenum metallurgy furnace materials, chemical chemicals, and metal processing. The downstream steel covers the entire spectrum of molybdenum industry chains. The downstream steel covers various military industries such as smelting, petrochemicals, aerospace, defense, etc. field.

The continued high dividend policy highlights the company's medium- to long-term investment value. According to the company announcement, the company plans to pay a dividend of 1.29 billion yuan in 2023, with a dividend ratio of 42%, and a cash dividend of 0.40 yuan (tax included) per share.

According to statistics, the company has achieved a total of 15 dividends since its listing. In 2008 to 2023, the company achieved a cumulative net profit of 12.003 billion yuan, with a total dividend amount of 9.045 billion yuan. The average dividend rate was 75.36%. Strong profit resonates with a large percentage of dividends, highlighting the company's medium- to long-term investment value.

The rapid rise in molybdenum prices in 23 ushered in an explosive period. The decline in the share of three fees drove subsequent profits to release steady growth in business performance in 2020-22, and the rapid rise in molybdenum prices in 2023 ushered in an explosive period. In 2020-2022, the company's revenue grew steadily and net profit to mother grew rapidly, with 2-year compound growth rates of 12.16%/170.80% respectively; in 2023, due to multiple factors such as logistics recovery after the end of the epidemic, recovery in industry demand, peak season cycle of terminal steel mills, and early inventory preparation by overseas traders, molybdenum prices rose rapidly. The company ushered in a performance explosion period, achieving annual revenue of 11.531 billion yuan, +20.99%; achieved net profit to mother of 3.099 billion yuan, year-on-year + 132.19% 2024Q1's operating performance fluctuated due to high base+high molybdenum prices in the same period last year. It achieved operating income of 2.867 billion yuan, an increase of 8.43% year on year, and realized net profit to mother of 0.633 billion yuan, a decrease of 23.95% year on year.

The share of three fees has declined steadily, and the company has achieved remarkable results in improving quality and efficiency, and profits are expected to be further released. The company's three sales, management, and financial expenses have declined steadily in the past three years. The 2023 target was 4.2%, down 0.5 percentage points from the full year of last year; the target for the first quarter of 2024 was 3.8%, down 0.4 percentage points from the same period last year. The company has achieved remarkable results in improving quality and efficiency, and profits are expected to be further released.

The gap between supply and demand widens in the medium term and high short-term demand. The molybdenum price center is expected to achieve steady improvement in high performance+wide application, and the strategic metal properties are prominent. As a strategic metal with obvious performance advantages, molybdenum was included in the list of 14 important strategic minerals by China's Ministry of Natural Resources in 2019. Due to its strong mechanical properties and material properties, it is widely used in high-end fields such as aerospace, semiconductors, and chemicals.

Looking at the medium term, the gap between supply and demand is expected to continue to widen in the past three years, driving a steady rise in molybdenum prices. On the supply side, domestic supply is growing slightly due to the slowdown in the growth rate of production expansion by stock side enterprises and the delay in the commissioning of major medium- and large-scale production expansion projects on the incremental side. At the same time, considering the overall trend in molybdenum ore production in 2024Q1, the total global molybdenum supply in 2024-2026 is expected to be 0.2679/0.2707/0.2727 million tons, respectively; on the demand side, China's molybdenum consumption accounts for more than 40% of the world. We believe that along with economic development and industrial restructuring, molybdenum demand is expected to continue to grow. The total global demand for molybdenum is expected to be 0.2967/0.3071/0.317 million tons, respectively. According to this estimate, the industrial supply and demand gaps are estimated to be 2.88, 3.64, and 44,300 tons in the next three years, respectively. Continued widening supply and demand gaps are expected to drive a steady rise in the molybdenum price center.

Looking at the short-term level, ferromolybdenum steel recruitment data for January-June 2024 surged 30% year on year. Under high molybdenum prices, the company's performance is expected to exceed expectations. According to tungsten and molybdenum cloud trading data, the total domestic molybdenum iron steel yield from January to June 2024 is about 71,857 tons, and the average monthly steel yield is about 11976 tons, a significant increase of about 30% over the same period last year. We believe that under the influence of high demand, molybdenum prices are expected to maintain a high fluctuation trend in the short term. The company is expected to fully benefit from this stage, and the performance is expected to exceed expectations.

Profit forecast: In summary, we believe that as a leader in the domestic molybdenum industry with abundant resource reserves, the company's performance is expected to accelerate the release of molybdenum prices as the supply and demand gap widens; at the same time, considering the company's comprehensive business spectrum, it is expected that the company's molybdenum metal business such as molybdenum powder and molybdenum products will accelerate production scheduling along with the expansion of downstream application scenarios. Under these circumstances, it is predicted that the company will achieve operating income of 12.995/15.059/17.673 billion yuan and net profit to mother of 3.259/3.754/4.235 billion yuan in 2024-2026, respectively. The corresponding PE is 10.42/9.04/8.01x, giving it a “recommended” rating.

Risk warning: Product market price fluctuation risk, safety and environmental risk, exchange rate fluctuation risk.