Investment highlights

For the first time, Naipu Mining Machinery (300818) was given a rating that outperformed the industry. The target price was 36.00 yuan. Based on comparable company valuation methods, it corresponds to the 2025 valuation multiplier of 28x. The reasons are as follows:

Metal prices are high, and the “Belt and Road” represents the acceleration of copper mining in the region. On the demand side, China and the US represent starting a loose monetary policy, or driving short-term demand for non-ferrous metals such as copper; on the supply side, factors of political instability in South America, Africa and other regions still exist, and we expect the supply side of mines to continue to be tight. We determine that the price of non-ferrous metals may continue to trend upward, which in turn will drive the mining volume and spare parts consumption of miners to increase.

The “Belt and Road” regions such as Chile, Peru, and the Congo account for nearly half of the world's copper production. With the development of the Belt Road and the reshaping of the global supply chain, we expect the lead countries to see a faster increase in copper production.

Consumables are “consumer goods”, and the trend of penetration of new materials continues. The company's main product, wear-resistant spare parts, are operating consumables. They are generally replaced every 3-6 months. We believe they have the characteristic of stable revenue. For example, in 2019-2023, global leaders Weil and Metso Group accounted for more than 50% of the after-sales market revenue represented by spare parts. We calculate that in 2023, the global mining spare parts market is about 43 billion yuan, China is about 7 billion yuan, and the concentration of comprehensive overseas mining equipment leaders is high (CR3 exceeds 50%), of which the proportion of rubber spare parts replaced metals is about 10%. Considering factors such as a 30% increase in the service life of rubber spare parts compared to metal parts, an energy saving of 8-10%, and a significant reduction in the risk of falling off, we believe that the penetration rate of rubber spare parts is expected to accelerate as mines become larger. Leading domestic and foreign rubber spare parts are on the same track, which is beneficial to domestic enterprises to accelerate penetration.

Focus on leading the global level of rubber spare parts research and development, and have entered a period of production capacity release at home and abroad. Naipu Mining Machinery is a domestic leader focusing on the development of wear-resistant rubber spare parts. The comprehensive performance of its products is not much different from leaders such as Weir and Metso after testing. We believe that it has obvious advantages in product development and capacity expansion. 1) Product research and development:

The company focuses on rubber spare parts. In 2005, it was first developed in China, and the product was recognized by major customers such as Jiangtong. Currently, it continues to promote new liquid phase masterbatch and ceramic slurry pump spare parts technology, and is the first company in the world to try this technological innovation; 2) Capacity expansion: the company's capacity utilization rate in recent years is close to 100%, the company's Zambia plant will soon be put into operation in October 2024, and the domestic phase II plant will soon be put into operation in early 2025. We expect to bring more room for order growth.

What is our biggest difference from the market? The market believes that the company's order growth rate may maintain a steady trend. According to our communication with downstream customers, overseas Zambian factories have sufficient intended orders, releasing production capacity or driving order upgrades.

Potential catalyst: Copper prices are rising at an accelerated pace.

Profit forecasting and valuation

We expect the company's 2024/2025 EPS to be 0.97/1.30 yuan, and the CAGR will be 56%, respectively. The current stock price corresponds to 2024/2025 P/E 30/22x, respectively. We gave a target price of 36 yuan, with an increase of 24.3%, corresponding to the 2024/2025 P/E of 37/28x, respectively, and gave a “outperforming industry” rating.

risks

The global economic recovery fell short of expectations, copper prices fell short of expectations, production capacity releases fell short of expectations, exchange rate fluctuations were large, and EPC projects were uncertain.