Introduction to this report:

2024Q2. Despite the rise in tungsten concentrate prices, the company's overall gross profit increased, and performance improved month-on-month. The company's profit is expected to continue to improve in the future as tool sales increase as demand from the Kakizhuyuan mine is injected and manufacturing demand picks up.

Key points of investment:

Maintain an “Overweight” rating. 24H1 achieved net profit of 0.147 billion yuan to mother, a year-on-year decrease of 39.30%. Q2 The company achieved net profit of 0.08 billion yuan to mother, a year-on-year decrease of 41.62% and a month-on-month increase of 30.16%. Considering increased competition in the tool industry and changes in the company's product structure, adjust the company's 2024-2026 performance: The company's EPS for 2024-2026 is expected to be 0.29/ 0.41/0.51 yuan (-0.11/-0.07/-0.04 yuan), respectively. Refer to companies in the same industry, and consider the company's CNC/PCB tool production technology industry leader, giving the company 22 times PE in 2025, and lowering the target price to 9.02 yuan (originally 12.65 yuan) to maintain the “gain” rating.

2024H1's tungsten carbide product profits declined, and R&D and financial expenses increased, leading to a decline in performance. The overall gross profit of 2024H1's products in the hard alloy industry decreased by about 0.051 billion yuan compared to 23H1 due to large cost increases, including gross profit of alloy products -0.025 billion to 0.215 billion yuan, and refractory metal gross profit -0.03 billion to 0.106 billion yuan, but blade business gross profit +0.009 billion to 0.486 billion yuan (CNC blade sales increased by more than 20% year on year), powder gross profit +0.026 billion to 0.134 billion. At the same time, in 24H1, although net investment income and impairment losses were reduced, the company's period expenses increased by about 0.071 billion yuan, causing 24H1's net profit to fall by about 0.095 billion yuan year on year.

2024Q2's overall gross profit increased, and performance improved month-on-month. 2024Q2, although the cost of raw materials increased, and the price of black tungsten concentrate (65%) was 0.1445 million yuan/ton, +21.11%, and +16.87% month-on-month, but the market prices of intermediate and downstream powder and hard alloy products all increased, making the company's product gross profit +0.175 billion to 0.595 billion month-on-month. 2024Q2's management and R&D expenses increased month-on-month, with period expenses +0.122 billion to 0.458 billion yuan, and final Q2 net profit of the company +0.019 billion to 0.083 billion yuan month-on-month.

With the tool industry leading, mining resources to be injected, and demand picking up, the company will give full play to its integrated advantages, and performance is expected to improve. In the first half of 2024, the company produced nearly 7,200 tons of hard alloy, ranking first in the world. The domestic market share of “Diamond Brand” hard alloy was close to 30%, and the production of CNC blades exceeded 60 million pieces, an increase of more than 20% over the previous year. Jinzhou has prototyped a PCB miniature drill with a length ratio of more than 50 times, breaking the limit of the length-diameter ratio; it has developed a new coated drill suitable for extremely small-diameter packaging substrates and aluminum alloys, leading the country in terms of technology. Furthermore, the company's photovoltaics uses high-strength tungsten wire to achieve mass production and stable supply. In the future, with the injection of Shizhuyuan tungsten ore, the company's performance is expected to grow as resource guarantee capabilities improve and integrated advantages become apparent.

Risk warning: The recovery of the manufacturing industry falls short of expectations, project progress falls short of expectations, etc.