Incident: The company released its 2024 semi-annual report. In the first half of the year, the company achieved operating income of 6.593 billion yuan, +19.66% year over year; net profit to mother of 1.507 billion yuan, +0.95% year over year. Looking at the single quarter, in the second quarter, the company achieved operating income of 3.726 billion yuan, +30.02% year on year; realized net profit of 0.874 billion yuan, +32.36% year over year, and +37.98% month on month. The single quarter results all achieved significant increases from month to month, all of which reached new highs in nearly 10 years.

We believe that the growth in the company's performance exceeding expectations is mainly due to the following two factors: 1. Continued increase in downstream terminal demand led to a sharp increase in ferromolybdenum steel procurement data (+30% YoY in January-June), and high demand drove the molybdenum price center to continue to rise; 2. Continued optimization of the company's product sales structure (production and sales in the molybdenum metal products sector doubled by leaps and bounds, and production increased 55.86% year on year in the first half of the year).

Many indicators on the reporting side continue to improve, and the company's performance is expected to accelerate the release of profits, and the share of the three fees on the statement side will continue to decline, and the results of cost reduction and efficiency will significantly help release the company's performance. Since 2022, the company's sales, management, and finance expenses have continued to decline as a share of revenue. The target for the first half of 2024 was 3.21%, down 0.71 percentage points from the same period last year. We believe it reflects the continuous improvement of the company's management efficiency and remarkable results in cost reduction and efficiency, which will help further release profits. Advance payments+contract liabilities on the balance sheet have increased dramatically, and high downstream demand continues to be realized. As of the end of the first half of 2024, the company's advance receipts+ contract liabilities were $0.135 billion, an increase of 0.046 billion yuan compared to the beginning of the period. We believe it reflects that the company has sufficient orders on hand, and the performance is expected to be rapidly released with product delivery.

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, and is highly irreplaceable in many application scenarios.

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 is estimated to be 26.79/27.07/ 0.2727 million tons in 2024-2026, 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. The industrial supply and demand gaps are expected 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.

Continued high dividend policy highlights the company's medium- to long-term investment value

In 2023, the company distributed 1.29 billion yuan in cash dividends to all shareholders, with a dividend ratio of 42%. 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.

Profit forecast: 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. The company is predicted to 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, corresponding to PE 9.55/8.29/7.35x, maintaining the “recommended” rating.

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