Actively build a leading company integrating tungsten ore resources to photovoltaic tungsten wire. Chinatungsten Hi-Tech is the largest comprehensive supplier of hard alloys in China. It is an operation and management platform for the tungsten industry under China Minmetals Group Co., Ltd. (the actual controller of the company, with a shareholding ratio of 49.89% as of March 31, 2024). In 2021, the company actively implemented equity incentives to enhance employee motivation and enhance the company's profitability. In 2023, the company produced about 0.014 million tons of hard alloy products, ranking first in the world; the production of CNC blades was about 0.14 billion pieces, accounting for about 20% of the total domestic output. On the resource side, Kakizhuyuan Company is about to inject, which will help the company form a complete tungsten industry chain integrating tungsten mining, tungsten smelting, hard alloys and deep processing, and integrate resources.

Kakizhuyuan will soon be injected to build a complete tungsten industry chain. In January 2024, the company announced that it intended to purchase 100% of the shares of Kakizhuyuan Company held by Minmetals Tungsten Industry and Woxi Mining; in June, the company announced that the above transaction consideration was 5.2 billion yuan, of which 0.4 billion yuan was paid in cash, 4.795 billion yuan in shares, and raised funds to promote the Kakizhuyuan selection technology improvement project; on July 4, the company announced that the State Assets Administration Commission recently agreed in principle to the company's current restructuring plan. In addition to Kakizhuyuan, the company is also entrusted with the management of the four tungsten mines of Minmetals Group, Xintianling Tungsten Industry, Hengyang Yuanjing Tungsten Industry, Jiangxi Xiushui Xianglushan Tungsten Industry, and Hunan Yaogangxian Mining (total output of about 0.018 million tons of tungsten ore in 2022). The next 4 mines are expected to be gradually injected into the company.

The Kakizhuyuan tungsten deposit is rich in resources and is quite large. Kakizhuyuan's tungsten resource is 0.56 million tons, accounting for more than 30% of the country's tungsten resource reserves, and has the highest industrial mining reserves in the world. As of the first quarter of 2024, Kakizhuyuan's mining scale was 3.5 million tons/year, with an annual output of over 7,000 tons of tungsten concentrate and an annual production of over 0.3 million tons of fluorite, ranking among the leading domestic industries. In terms of smelting, the annual production capacity of ammonium paratungstate and tungsten oxide was 15,000 tons and 11,000 tons, and the 2023 output was 13051 tons and 8183 tons, respectively. Kakizhuyuan is currently carrying out a 0.01 milliont/d mining technology improvement project, with a total investment of 0.959 billion yuan, of which 0.8 billion yuan was raised. After the technical reform is completed, the annual production capacity of tungsten concentrate will increase from 6,500 t/d to 10,000 t/d. The company plans to start construction of the technical improvement project in 2024 and put into operation in 2028. The company predicts that Kakizhuyuan mining rights will achieve cumulative deduction of non-net profit of 0.744 billion yuan in 2024-2026.

Steadily promote the expansion of photovoltaic tungsten wire production capacity. According to the company's investor relations activity record sheet, the production line for the company's new 10-billion-meter high-strength fine tungsten wire project has been put into operation, and production capacity is currently climbing. The company continues to adjust technology according to market demand, improve product qualification rates, and strive for early large-scale mass production.

Profit forecasting and valuation. We expect that in the next three years, the company will benefit from the injection of Shizhuyuan tungsten ore and the expansion of CNC blade production capacity, and its profitability is expected to continue to grow. The company's net profit for 2024-2026 is 0.546, 0.649, and 0.729 billion yuan, respectively. Referring to the valuation level of comparable companies, and considering the company's leading position and the synergy of the entire industry chain, a PB valuation of 2.5-2.6 times in 2024 was given, corresponding to a reasonable value of 10.75-11.18 yuan/share. For the first time, coverage gave a “superior to the market” rating.

Risk warning. Risk of fluctuations in raw material prices; macroeconomics falling short of expectations; downstream demand falling short of expectations