Key points of investment

Net profit due to 2024H1 increased 28.47% year on year. Q2 profit from the new energy materials and rare earth sector improved by 2024H1. The company achieved operating income of 17.161 billion yuan, a year-on-year decrease of 8.37%; net profit to mother was 1.017 billion yuan, up 28.47% year on year; net profit without return to mother was 0.858 billion yuan, up 18.93% year on year. With 2024Q2, the company achieved operating income of 8.892 billion yuan, a year-on-year decrease of 12.55%; net profit to mother was 0.589 billion yuan, up 67.83% year on year; net profit after deducting non-return to mother was 0.557 billion yuan, up 69.14% year on year.

Tungsten and molybdenum business: The quality of photovoltaic tungsten wire products continues to be upgraded, and the results of continuous expansion of production are remarkable 2024H1. The company's tungsten and molybdenum business achieved operating income of 8.781 billion yuan, an increase of 10.98% year on year; total profit of 1.427 billion yuan, an increase of 29.50% year on year. Excluding the impact of the company's joint ventures, tungsten and molybdenum business profit increased 27.73% year on year. Among them, due to the rise in tungsten concentrate prices, the revenue of tungsten mines increased year-on-year, and profits increased sharply year-on-year. By increasing the export share of tungsten smelting products and increasing the utilization rate of self-produced production capacity, profits increased dramatically over the same period last year. The company rapidly expanded production of tungsten wire for photovoltaics, and product quality continued to upgrade. The sales volume of fine tungsten wire in the first half of the year was 74.3 billion meters (of which 62.8 billion meters of tungsten wire for photovoltaics were sold). In the field of cutting tools, the company achieved good growth in key customer projects in the 3C market, and revenue and profit increased year-on-year in the first half of the year.

New energy materials business: Overall profitability declined. Sales of ternary materials and lithium cobalate increased sharply by 2024H1. The company's new energy materials business achieved operating income of 6.3 billion yuan, a year-on-year decrease of 22.43%; total profit of 0.246 billion yuan, a year-on-year decrease of 10.06%. The year-on-year decline in revenue and profit was mainly affected by falling raw material prices and increased competition in the industry. 2024Q2's total profit was 0.132 billion yuan, up 15.79% month-on-month. The 3C industry gradually recovered in the first half of the year. The company sold 0.0184 million tons of lithium cobalate products, up 29.98% year on year, and its market share stabilized its leading position in the industry and achieved further growth; sales of ternary material products were 0.0263 million tons, up 108.59% year on year; hydrogen storage alloy sales were 1,860 tons, up 7.53% year on year, continuing to maintain the leading position in the industry.

Rare earth business: Increase the NEV market and overseas customer expansion, and improve the profitability of magnetic materials quarterly by 2024H1. The company's rare earth business achieved revenue of 2.054 billion yuan, a year-on-year decrease of 21.48%; achieved a total profit of 0.117 billion yuan, a year-on-year decrease of 23.50%. 2024Q2's total profit was 0.077 billion yuan, up 92.50% month-on-month. The company was integrated with the China Rare Earth Group, and the atomic company Longyan Rare Earth Company and the former Jinlong rare earth smelting and separation business were no longer included in the scope of the consolidated statement, resulting in a sharp decline in profit and revenue in this part of the business.

At the same time, lower raw material prices and increased competition have led to a decline in the profits of rare earth deep processing products. In the first half of the year, the company's magnetic material products expanded the NEV market and overseas customers, stabilized the share of key customers in the wind power sector. Sales increased 13% year on year, and profitability improved quarter by quarter.

Profit forecasting and valuation

Maintain profit forecasts and maintain a “buy” rating. The company's three main businesses are working together to strengthen its leading edge by continuing to expand production of tungsten wire for photovoltaics. We maintain our profit forecast for 2024-2026. The net profit for 2024-2026 is 2.007, 2.511, and 2.865 billion yuan respectively, up 25.32%, 25.12%, and 14.08% year-on-year respectively. The corresponding EPS is 1.42, 1.77, and 2.02 yuan/share, respectively, and the corresponding PE is 11, 9, and 8 times, respectively.

Risk warning

Raw material price fluctuations exceeded expectations, the company's production capacity construction fell short of expectations, and downstream demand growth fell short of expectations.