The company is a leading comprehensive supplier of tungsten carbide tools in China. The company's business covers the entire tungsten industry chain, mainly including the development, development, production, sales and trade of hard alloys and non-ferrous metals such as tungsten, molybdenum, tantalum, niobium, etc., and deep-processing products and equipment. In 2019-2023, the company's revenue grew from 8.085 billion yuan to 12.736 billion yuan, with a CAGR of 12.03%; net profit to mother increased from 0.123 billion yuan to 0.485 billion yuan, with a CAGR of 40.92%; revenue for the first three quarters of 2024 was 10.229 billion yuan, up 7.13% year on year, and net profit to mother was 0.206 billion yuan, down 34.66% year on year.

Kakizhuyuan: Integrate tungsten industry chain resources to enhance the profitability of listed companies. Tungsten is a scarce non-renewable strategic resource. Tungsten ore injection helps Chinatungsten Hi-Tech to form a complete tungsten industry chain for tungsten mining, tungsten smelting, hard alloy and deep processing. Kakizhuyuan is rich in mineral resources, with 0.56 million tons of tungsten resources, accounting for more than 30% of the country's tungsten resource reserves, and has the highest industrial mining reserves in the world. Currently, it produces more than 7,000 tons of tungsten concentrate per year, making it one of the largest tungsten concentrate production bases in the country. Furthermore, after the completion of the fund-raising technology improvement project, the company's ore processing scale is expected to grow from 2.2 million tons/year to 3.5 million tons/year. Kakizhuyuan achieved revenue of 2.58 billion yuan and net profit of 0.512 billion yuan in the first three quarters of 2024.

Tungsten wire: Laying out photovoltaic tungsten wire opens up new space for growth. Diamond wire is an important consumable material for the manufacture of photovoltaic silicon wafers, and the thinning of diamond wire has also become a demand for silicon wafer thinning. In this context, the tungsten diamond wire market penetration rate is also gradually increasing. The company actively lays out the photovoltaic industry and carries out a photovoltaic tungsten wire production capacity transformation project with an annual output of 10 billion meters.

PCB tools: AI-driven, promising prospects. Driven by multiple factors such as AI, cloud computing, and computing power, related PCB boards place higher demands on the length-diameter ratio and quality of drills. If demand explodes, it may boost the company's performance.

Jinzhou Precision is a leading global PCB drill company. The company has increased investment in tool research and development, closely followed technological needs, consolidated its leading position in the industry, and has basically achieved localized replacement of high-end packaging substrates. In 2023, the global PCB drill bit market space is about 4.68 billion yuan.

CNC tools: leading domestic CNC tool enterprises. Tools are consumables in mechanical processing and are known as “industrial teeth”. 1) Large market space: In 2022, the global tool market exceeded 200 billion yuan, and China's tool market was nearly 50 billion yuan; the global tool industry has the characteristics of echelon competition, forming the three “Europe, America, Japan, South Korea, and domestic” echelons. 2) There is broad space for domestic replacement: According to estimates, taking CNC blades as an example, the localization rate (value) in 2022 is about 35%, and the localization rate (quantity) is about 70%. 4) “Volume price+export+package” is an important highlight of the company's CNC tools: the recovery in the manufacturing industry is the key to a “sharp rise in volume and price” of tools; the company actively promotes the Great Wall and Diamond brand dual brand strategies to increase market share; tool exports and high-end penetration represented by overall solutions are an important direction for the company's growth.

Investment advice: Without considering Kakizhuyuan's injection, we expect the company to achieve revenue of 13.959, 15.443, and 17.111 billion yuan respectively in 2024-2026, realized net profit of 0.308, 0.559, and 0.696 billion yuan, respectively, and corresponding EPS of 0.22, 0.40, and 0.50 yuan respectively (based on the mining rights performance commitment amount, the company is expected to achieve revenue of 16.328 and 17.93, respectively) in 2025-2026 billion yuan; net profit to mother was 0.856 and 0.869 billion yuan, respectively). Referring to the valuation level of comparable companies, based on the company being a domestic tungsten carbide leader and having a collaborative advantage in the upstream and downstream industrial chains, it was given 30 times PE in 2025, with a target price of 12.0 yuan. For the first time, coverage was given, and a “strong push” rating was given.

Risk warning: manufacturing boom falls short of expectations, hard alloy industry competition intensifies, market development falls short of expectations, post-merger and acquisition integration falls short of expectations, etc.