Remaining fresh for 20 years, holding the lead in indium tin for 20 years

With abundant reserves of tin and indium resources, the company has established a leading position in the industry in both tin and indium fields.

In 2023, the company's share of the domestic/global tin metal market reached 47.9%/22.9%, ranking first among the top ten global fine tin producers in 2023. The company has also achieved remarkable results in the field of indium resources. The indium resource production base located in the Dulong mining area is the largest native indium production base in the country. In 2023, the domestic/global market share of the company's native indium was approximately 15.9%/9.6%.

The fundamentals of supply and demand resonate with macroeconomic factors, and tin prices have strong upward momentum

Imports and inventories have reached an inflection point, and supply-side tightening has had a positive impact on tin prices. 1) On the import side, after Myanmar's mining ban was officially implemented in August '23, the expected import volume was not immediately tightened. The reason is that Myanmar's raw ore stocks and slag recycling are still abundant. However, as stocks were exhausted and slag recycling stopped, starting in May '24, we estimated that Myanmar mining supply and demand were shifting to a gap. Myanmar's mining ban officially began to have an impact on domestic supply after a period of 10 months. Furthermore, Congolese gold ranks second among China's tin importers. Since this year, the production and shipment of Congolese gold mines has been disrupted continuously. If disturbances beyond expectations occur in the future, it may have a further impact on the supply side. 2) On the inventory side, tin ingot inventories have shown a steep inventory curve over the past 24 years. We believe this is mainly due to the hidden inventory visualization process spawned by higher production and higher futures market prices. The inventory accumulation slope began to slow in mid-late April, and the social treasury switched to storage in the last week of May. We think it is mainly due to the fact that the correction in tin prices stimulated transaction demand that was suppressed earlier, and that a certain recovery in terminal demand stimulated tin ingot consumption.

In the past, there was a good synergy between tin prices and copper prices. We think the essential reason why tin and copper prices can be linked is that the macroscopic factors of tin are the same as copper, so monetary policy can be used as a leading indicator of tin prices. First, important downstream parts of tin such as consumer electronics are more sensitive to changes in interest rates. Changes in interest rates due to changes in monetary policy may directly affect demand for tin. Second, changes in monetary policy or guide changes in inflation expectations, and the prices of many industrial metals represented by tin have benefited from the upward performance of inflation expectations. The momentum in the US labor market is slowing down, and monetary policy expectations are gradually easing, which is expected to benefit the performance of tin prices.

Maximize the benefits of tin/indium price elasticity and forge ahead in the tungsten industry

In 2023, Tin Industry Co., Ltd. produced nearly 0.024 million tons/102 tons of tin/indium on its own, which is expected to maximize the performance flexibility brought about by the rise in tin prices. Furthermore, the company is expected to make rapid progress in the tungsten sector. At the beginning of 2024, Yunxi Group signed a strategic cooperation agreement with Xiamen Tungsten Industry. We speculate that the cooperation between the two companies may include further exploration of the tungsten resources of the Kafang branch. Referring to the mining scale and grade of the Kafang ore in 2011, we estimate that the mine is expected to contribute 65% to the annual output of 2,520 tons of tungsten concentrate.

Investment advice: We expect the company to achieve net profit of 2.15/2.71/3.26 billion yuan in 24-26, corresponding EPS 1.31/1.65/1.98 yuan/share, corresponding PE 10.49/8.33/6.94 times the closing price on August 14, 2024. Referring to the industry average valuation level of 13.82X, the first coverage was given to Tin Industry shares 14X in 2024, corresponding to a target price of 18.34 yuan, giving Tin Industry shares a “buy” rating.

Risk warning: risk of changes in industrial policy, risk of market price fluctuations, supply chain risk, safety and environmental risk, risk of errors in estimation, risk of fluctuating ore grade, risk of resource management.