The 2017 performance is in line with the forecast
Zhangyuan tungsten industry announced its 2017 results: operating income was 1.83 billion yuan, up 40% from the same period last year; net profit attributed to the parent company was 31.42 million yuan, down 33% from the same period last year, corresponding to earnings per share of 0.03 yuan, in line with KuaiBao's performance. The net profit after deducting non-return was 24.22 million yuan, an increase of 1.7x over the same period last year. Among the non-recurrent gains and losses, the government subsidy was 29.29 million yuan, a decrease of 47% / 26.41 million yuan compared with the same period last year. 4Q17's single-quarter revenue was 420 million yuan, down 1.1% from the same period last year, and its net profit was 12.19 million yuan, down 70% from the same period last year, mainly due to a decrease in net non-operating income.
Comments: 1) benefit from the rise in tungsten prices. In 2017, the price of domestic tungsten concentrate rose 30% year on year to 910,000 yuan / ton, the company's comprehensive gross profit margin increased from + 2.6ppt to 17.8%, ammonium paratungstate / tungsten powder / tungsten carbide powder / cemented carbide year on year + 4.1ppt/+3.5ppt/+5.3ppt/+11.3ppt, tungsten oxide decreased 4.6ppt. 2) sales have increased. In 2017, the total output of metal plates was 11900 tons, down 4.5 percent from the same period last year, and the total sales volume was 11800 tons, an increase of 26 percent over the same period last year. In 2017, the company sold 529 tons of bars, an increase of 1.8x over the same period last year, but the output of cemented carbide is still lower than the company expected. 3) the impairment loss of assets increased by 74% compared with the same period last year, affecting EPS by 32.49 million yuan, of which the impairment of fixed assets / inventory decline loss increased by 20.09 million yuan / 16.83 million yuan compared with the same period last year.
Trend of development
The price of tungsten has some support. Recently, domestic tungsten mines have gradually resumed work, and the supply is expected to increase marginally in the short term, but high environmental protection and safety requirements have become the norm, while the demand-side manufacturing industry is expected to stabilize, which is good for the demand for tungsten.
It will take time for cemented carbide to improve. The 400 tons / year high performance integral cemented carbide drilling tool (blank) technical renovation project of subsidiary Ganzhou Aoketai was completed at the end of June 2017. The output of cemented carbide coated blades and bars increased in 2017, but the lower-than-expected scale production still led to high costs. The net profit of Ganzhou Aoketai was 150 million yuan.
Profit forecast
Based on changes such as tungsten price assumptions, we raised our 2018 profit forecast by 24% to 0.05 yuan, and introduced a 2019 profit forecast of 0.05 yuan.
Valuation and suggestion
The current price of the company corresponds to the 158x/161x 2018 Universe 2019 Pmax E, maintaining a neutral rating. Considering that it will take time for the company's business to improve, we slightly reduce our target price by 17% to 9.5 yuan, which is 18% lower than the current price. Based on the 2019 price-to-earnings ratio, it corresponds to 190x 2019e Ppace E.
Risk.
Metal prices fell back sharply.