Core viewpoints

1. 2023H1 achieved a revenue of 5.51 billion yuan (+ 12.5%) and a net profit of 1.493 billion yuan (+ 124.5%).

2. Core logic: material upgrade superimposed elements instead of two-wheel drive. The large cycle of manufacturing upgrading has led to an increase in molybdenum demand. With the rapid development of dual-phase steel materials in recent years, the trend of industrial alloying shows the logic of molybdenum instead of nickel.

3. The company continues to maintain a high proportion of dividends to protect the rights and interests of shareholders. The company has paid dividends for many years since 2017, with a cumulative cash dividend of 2.68 billion yuan from 2017 to 2022, with a historical cumulative dividend ratio of nearly 80%.

4. As of the 18th, the domestic volume of ferromolybdenum steel in August is about 4800 tons, and the total amount of steel is expected to continue to exceed 10,000 this month, and the prices of molybdenum concentrate and ferromolybdenum are also on the rise again. At present, the terminal demand is growing steadily, the opening price of ferromolybdenum in large steel mills continues to rise, and the molybdenum price is expected to remain high and stable.

Event

The company issues its 2023 half-yearly report

The company released a semi-annual report that 2023H1 achieved revenue of 5.51 billion yuan, an increase of 12.5% over the same period last year, and a net profit of 1.493 billion yuan, an increase of 124.5% over the same period last year. The net profit of non-return was 1.488 billion yuan, an increase of 126.1% over the same period last year.

Brief comment

1. The improvement of molybdenum price led to the growth of the company's performance. The company's Q2 net profit was 660 million yuan. 2023Q2's single-quarter net profit reached 660 million yuan, an increase of 69.2% over the same period last year. In 2023, the price of molybdenum market at home and abroad fluctuated at a high level, and the prices of major molybdenum products rose year on year. In 2023, the average price of H1 molybdenum concentrate was 4077 yuan per tonnage, an increase of 56.3 percent over the same period last year. The average price of ferromolybdenum was 27.23 million yuan per base ton, an increase of 57.0 percent over the same period last year. The profitability of the company's products has been effectively improved, and the performance in the reporting period has increased significantly compared with the same period last year.

2. Core logic: material upgrading superimposed elements instead of two-wheel drive manufacturing upgrade cycle brings molybdenum demand growth. The essence of molybdenum demand growth is to upgrade from "iron" consumption (mainly driven by infrastructure real estate) to "alloy element" consumption, and the demand side benefits from the rapid development of new energy equipment, wind power and military industry. The molybdenum price is high, but the global molybdenum supply is still rigid, and the molybdenum binary supply structure is composed of overseas copper-molybdenum associated mines and domestic primary ores. Many overseas copper-molybdenum associated mines are affected by grade decline force majeure, and overseas molybdenum supply shows a shrinking trend. Domestic production capacity is relatively stable, the new production capacity can not make up for the decline in existing production capacity; molybdenum downstream demand long slope thick snow:

Downstream consumption of molybdenum is concentrated in special stainless steel (316,dual-phase, Harrington alloy, corrosion resistant alloy, etc.), superalloy (military and aerospace), wind power materials, photovoltaic thermal field materials, clean room materials, fine chemicals (including lithium-cobalt-nickel equipment pipelines), natural gas pipelines, LNG storage tanks, shipbuilding, nuclear power and thermal power boiler materials, etc.

Element substitution-molybdenum instead of nickel. In recent years, the rapid development of dual-phase steel materials has changed the inherent stainless steel system. Dual-phase steel has increased molybdenum content and weakened nickel content. The new grade dual-phase steel S32001 (containing about 0.5% molybdenum and about 1% Mur3% nickel) launched by Qingshan Group aims to replace 304 (no molybdenum and about 8% murine 10% nickel). In addition, S31500 (containing 2.5% molybdenum, 4.5-6.5% nickel), and 316 (containing molybdenum about 2%) Contains 10% nickel 14%) the market has formed a certain degree of substitution, ferromolybdenum replacement ratio of about 0.5-1% molybdenum instead of 4-5% nickel, the trend of industrial alloying is relatively clear.

3. Maintain high dividends and protect the rights and interests of shareholders

The company's profit available to investors in 2022 was 1.366 billion yuan, compared with 95 million yuan in the previous year, totaling 1.461 billion yuan. The company intends to distribute a cash dividend of 968 million yuan (3 yuan (including tax) for every 10 shares). Since 2017, the company has paid dividends for many years in a row, with dividend payout rates of 120%, 85%, 193%, 443%, 65%, 72%, respectively. The company continues to maintain a high dividend ratio to protect shareholders' rights and interests. Since listing, the cumulative dividend ratio has been nearly 80%.

4. Follow-up highlights

With the promotion of equity participation projects, the company's medium-and long-term investment profits are expected to increase. The company participates in two major molybdenum mining projects-Jinsha Molybdenum Mine and Jide Molybdenum Mine. 1) the company was granted a 10% stake in Jinsha Molybdenum Industry in 2013 and indirectly participated in Jinzhai Shapinggou Molybdenum Mine. In October 2022, Zijin Mining Group acquired an 84% stake in Jinsha Molybdenum for 5.91 billion yuan through public delisting. According to the development and utilization plan, the construction period of the project is expected to be 4.5 years to supplement the company's long-term production capacity.

2) in May 2020, the company acquired 18.3% of its shares in Tianchi Molybdenum Industry by way of capital increase. The amount of molybdenum metal in Jide Molybdenum Mine is 254000 tons, with an average grade of 0.113%.

According to the website of the people's Government of Jilin Province, the project plans to deal with 25000 tons of molybdenum mining and separation projects per day. After reaching production, it can produce 17000 tons of molybdenum concentrate (concentrate grade 47.00%, about 8000 metal tons). The company is expected to make huge investment profits when it is put into production.

The products are deeply coordinated with the fields of national defense and military applications. According to the disclosure of the company's investor relations, in 2021, the company deeply promoted the brand in the field of national defense and military industrial applications, and was listed as a member of the "National Council for dual-use Technology and products". The company's final high-end products successfully broke through the military supply chain certification and delivered 20 tons of military molybdenum slabs. Break through the key process of preparing molybdenum-niobium targets with high purity and large size for liquid crystal panels above single 100kg, and break through the foreign technical monopoly.

5. Profit forecast

Molybdenum prices were affected by the sharp rise in overseas molybdenum prices in the first quarter, resulting in price fluctuations, high in front and low in later, but rebounded rapidly. according to Antaike data, the price of 45% molybdenum concentrate was 4280 yuan / tonnage at the beginning of the year. Molybdenum prices continued to rise in the short term, and the price of 45% molybdenum concentrate rose as high as 5580 yuan / tonnage in the middle of February. As molybdenum prices rise to a high level, downstream into the cost upside down situation, steel mills purchase ferromolybdenum significantly reduced, market transactions decreased, forcing molybdenum prices to continue to decline. In April 2023, the average price of molybdenum concentrate dropped to 2955 yuan / tonnage, down 31% from the previous month. Ferromolybdenum prices have also dropped from a high of 380,000 yuan / ton this year to around 200,000 yuan / base ton. Profits of downstream special steel stainless steel enterprises have gradually recovered. Large enterprises restart the procurement of ferromolybdenum, and the demand for molybdenum is gradually increasing. By August 18, 2023, the total amount of steel is about 4800 tons, and the total amount of steel is expected to continue to exceed 10,000 this month. Molybdenum concentrate and ferromolybdenum prices have also risen from an average of 2955 yuan / tonnage and 200,000 yuan / base ton in April to more than 4300 yuan / tonnage and 280,000 yuan / base ton. We believe that the short-term surge can be regarded as an anomaly, and the long-term upward trend of molybdenum prices is determined by industrial upgrading, and molybdenum prices are expected to fluctuate upward in the future. At present, the terminal demand is growing steadily, the opening price of ferromolybdenum in large steel mills continues to rise, and the molybdenum price is expected to remain high and stable. Therefore, if the average price of molybdenum concentrate reaches 3500 yuan / tonnage, 4000 yuan / tonnage and 4500 yuan / tonnage respectively from 2023 to 2025, the net profit from 2023 to 2025 will reach 3.06 billion yuan, 3.99 billion yuan and 4.72 billion yuan respectively, corresponding to 12.1times, 9.3times and 7.8times of PE.

Risk analysis.

1. The demand for molybdenum is declining.

At present, the main consumer countries or regions of molybdenum include China, the United States, Europe and Japan. 1) China's molybdenum consumption is expected to grow by 7% compared with the same period last year. If the growth rate is lowered to 5%, the growth rate of Chinese consumption will decline from 7000 tons to 5000 tons, and the impact gap will drop to 19600 tons. 2) the proportion of US consumption in the world is about 9%. If demand falls by 10%, it will affect the decline of total demand by about 2500 tons. 3) European consumption accounts for about 22% of the world, and if demand falls by 10%, it will affect the decline of total demand by about 6200 tons. 4) Japan's consumption accounts for about 10% of the world, and if demand falls by 10%, it will affect the decline of total demand by about 2800 tons.

2. Molybdenum supply exceeded expectations.

If global molybdenum production increases by 3% compared with the same period last year, supply-side production will increase by about 8000 tons, and the impact gap will drop to about 18000 tons.