1H19 performance declined compared with the same period last year
Zhangyuan tungsten industry announced 1H19 results: operating income was 860 million yuan, down 9% from the same period last year; net profit from home was-29.84 million yuan, corresponding to earnings per share of-0.03 yuan, down 2.7x from the same period last year, lower than our expectations; deducting non-return net profit from-58.88 million yuan, down 6.7x from the same period last year, non-recurrent items include government subsidies of 34.83 million yuan. Company 2Q19 operating income 410 million yuan, year-on-year-14% / month-on-month-10%; return to the mother net profit-36.98 million yuan, year-on-year-4.4x/ month-6.2x. The decline in the company's performance in the first half and second quarter was mainly affected by the decline in tungsten prices and the increase in expenses and impairment.
Comments: 1) Tungsten prices decreased compared with the same period last year and month-on-month. The average price of 1H19 domestic tungsten concentrate (65%) is 95,000 yuan / ton, down 15% from the same period last year. The average price of 2Q19 is 92,000 yuan / ton, and the average price is-18% / month-on-month. 2) the gross profit margin is affected by the price of tungsten. 1H19's gross profit (before taxes and surcharges) was 110 million yuan, down 31% from the same period last year, and its gross profit margin decreased by 4ppt to 12.5% compared with the same period last year. 5.6ppt/ 2Q19 company gross profit margin compared with the same period last year-0.9ppt to 12%. 3) the cost is higher than the same period last year. 1H19's sales, R & D and financial expenses are + 36%, + 40% and + 18% year-on-year to 0.18,0.25 and 44 million yuan, and expense rates are + 0.7ppt, + 1ppt and + 1.2ppt. 4) 1H19 assets + credit impairment loss compared with the same period last year + 94% debacle 13.79 million yuan to 28.45 million yuan, mainly due to the provision of bad debts of accounts receivable and inventory decline losses. 5) 1H19 government subsidy increased by 2.6x/2527 ten thousand yuan compared with the same period last year. 6) the net profit of Ganzhou Aoketai Company, a subsidiary of 1H19 Company, was-51.61 million yuan, an increase of 5.82 million yuan over the same period last year.
Trend of development
Tungsten price has bottom support. Tungsten demand in the first half of the year was affected by economic slowdown and trade frictions. According to Antaike, 1H19's domestic cemented carbide production is-10% year-on-year, tungsten exports are-18% year-on-year, and domestic tungsten concentrate production is up 5% year-on-year. Looking ahead, at present, some mines stop or reduce production due to factors such as cost upside-down and environmental protection inspection, and there are contraction factors at the supply end, and we expect tungsten prices to be supported at the bottom.
1-3Q19 performance guidelines: the company expects net profit for the first three quarters of 2019 to be-1.11 to-125 million yuan, down 5x to 5.5x from the same period last year, mainly due to the decline in tungsten prices.
Profit forecast and valuation
Due to price, cost and other hypothetical changes, we lowered the company's 2019 profit forecast by 188% to-0.03 yuan, maintaining the 2020 profit forecast of 0.04 yuan. The company's current share price corresponds to 3.1 times / 3.0 times price-to-book ratio in 2019 / 2020. Maintain a neutral rating and a list price of 7.00 yuan, corresponding to 3.3 times 2019 market-to-book ratio and 3.3 times 2020 market-to-book ratio, which has 8.4% upside compared to the current stock price.
Risk
The demand for tungsten was lower than expected, and the price of tungsten fell sharply.