Core views

1. In 2023, the company achieved revenue of 11.63 billion yuan (+22.0%) and realized net profit of 3.13 billion yuan (+134.2%) to mother.

2. Core logic: material upgrade superimposed elements to replace two-wheel drive. Demand for molybdenum has increased due to a major cycle of manufacturing upgrades. In recent years, dual-phase steel materials have developed rapidly, and the industrial alloying trend shows the logic of molybdenum replacing nickel.

3. The company continues to maintain a high dividend ratio to protect shareholders' rights and interests. Since 2017, the company has been paying dividends for many years, with a cumulative cash dividend of 3.65 billion yuan in 2017-2022, and a dividend rate of nearly 70% since listing. Let's assume that the company's net profit dividend ratio in 2023 is 70%. Based on the company's current market value, the company's dividend ratio can reach 6.9%.

occurrences

The company issued an announcement of the 2023 annual results report

The company announced its 2023 annual results report. In 2023 (unaudited), the company achieved total operating income of 11.63 billion yuan, an increase of 22.0% over the previous year, and realized net profit of 3.13 billion yuan, an increase of 134.2% over the previous year, after deducting net profit of 3.03 billion yuan without return to mother, an increase of 130.9% over the previous year.

Brief review

1. Increased molybdenum prices drive the company's performance growth. In 2023, the average price of domestic molybdenum concentrate (45%-50%) was 3861.2 yuan/tonne, up 37.6% from the average price in 2022; we maintain our previous judgment: demand for molybdenum corresponds to the major cycle of upgrading China's manufacturing industry, essentially upgrading from “iron” consumption (mainly driven by infrastructure real estate) to “alloy element” consumption. The demand side of molybdenum continues to benefit from the rapid development of new energy equipment, wind power, and military industry. Demand for molybdenum has risen steadily in recent years, compounded by the supply side of just one sex This is the main reason why the molybdenum price center has continued to move upward in recent years.

Molybdenum market prices at home and abroad continued to improve. The company accelerated the extension and repair of the chain, seized market opportunities, optimized the product structure, increased the market investment volume of marketable products, and effectively improved the profitability of products. Performance increased sharply over the same period last year.

2. Core logic: Material upgrades and superposition elements replace the two-wheel drive manufacturing upgrade cycle, leading to an increase in demand for molybdenum. The essence of the increase in demand for molybdenum is an upgrade from “iron element” consumption (mainly driven by infrastructure and real estate) to “alloy element” consumption. The demand side benefits from the rapid development of new energy equipment, wind power, and military industry. Molybdenum prices are high, but global molybdenum supply is still rigid. The molybdenum binary supply structure consists of overseas copper-molybdenum associated mines and domestic primary ores. Many overseas copper-molybdenum associated mines are affected by declining grades. Overseas molybdenum supply is shrinking, domestic production capacity is relatively stable, and additional production capacity cannot make up for the decline in existing production capacity; downstream demand for molybdenum is long and snowy:

Downstream consumption of molybdenum is concentrated on special stainless steel (316, duplex, Hastelloy, corrosion-resistant alloys, etc.), superalloys (military and aerospace), wind power materials, photovoltaic thermal field materials, cleanroom materials, fine chemicals (including lithium-cobalt-nickel equipment pipelines), natural gas pipelines, LNG storage tanks, shipbuilding, nuclear power boiler materials, etc.

Elemental substitution - molybdenum replaces nickel. The rapid development of dual-phase steel materials in recent years has changed the inherent stainless steel system. Dual-phase steel has increased molybdenum content and weakened nickel content. For example, S31500 (containing 2.5%-3% molybdenum and 4.5-6.5% nickel) has formed a certain degree of substitution for the 316 (containing 2% molybdenum, 10% to 14% nickel) market. The iron molybdenum replacement ratio is about 0.5-1% to replace 4-5% of nickel. The trend of industrial alloying is quite clear.

3. Maintain high dividends and protect shareholders' rights

Since 2017, the company has been paying dividends for many years. From 2017 to 2022, the company's dividend payment rates were 120%/85%/193%/443%/65%/72%, respectively. The company continued to maintain a high dividend ratio to protect shareholders' rights and interests, and the dividend rate was nearly 70% since listing. Let's assume that the company's net profit dividend ratio in 2023 is 70%. Based on the company's current market value of 316 billion dollars, the company's dividend ratio can reach 6.9%.

4. Follow-up highlights

As shareholding projects advance, the company's medium- to long-term investment profits are expected to increase. The company participated in two major molybdenum ore projects - Jinsha Molybdenum Mine and Jide Molybdenum Mine. 1) The company transferred 10% of the shares of Sands Molybdenum in 2013 and indirectly participated in the Jinzhai Shapinggou Molybdenum Mine. In October 2022, Zijin Mining obtained 84% of the shares of Jinsha Molybdenum at RMB 5.91 billion 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 participated in Tianchi Molybdenum Industry through a capital increase to obtain 18.3% of its shares. The amount of molybdenum metal in the Jide Molybdenum Mine was 254,000 tons, and the average grade was 0.113%.

According to the website of the Jilin Provincial People's Government, the project plans to process 25,000 tons of molybdenum per day, and can produce 17,000 tons of molybdenum concentrate per year after delivery (concentrate grade 47.00%, about 8000 tons of metal). The commissioning is expected to be rich in the company's investment profits.

5. Profit prediction

Since late November 2023, demand for ferromolybdenum steel has continued to recover, driving molybdenum prices to stop falling and rebounding; as of the 25th, domestic molybdenum iron steel procurement volume was about 9,500 tons in January, and the total amount of iron molybdenum steel is expected to continue to exceed 10,000 this month. Up to now, the average price of molybdenum concentrate in January was 3,282 yuan/ton, but Zijin Mining's Shapinggou molybdenum mine will release more supply increases. At that time, molybdenum prices may be under pressure. We expect the company's net profit to the mother in 2024-2025 will reach 2.69 billion yuan and 2,762 billion yuan respectively, corresponding to 11.7 times and 11.4 times PE.

Risk analysis

1. Downstream demand falls short of expectations. According to the World Bank's newly released “Global Economic Outlook”, the global GDP growth rate is 2.4% in 2024, compared to 2.6% in 2023 and 3.0% in 2022; in addition, the World Bank also lowered the global GDP growth forecast for 2025 from 3% to 2.7%. Earlier, the IMF said that the pace of global economic recovery is slowing down, the gap between various economic sectors and regions continues to widen, and the world economy will still face enduring challenges. If downstream demand for molybdenum steel falls short of expectations, it may adversely affect the company's sales. If the price of molybdenum falls 3%/5% from our hypothetical value in 2024, the company's net profit to mother will fall 9%/16% compared to our expectations.

2. Molybdenum supply exceeded expectations. Zijin Mining's Shapinggou molybdenum mine will release more supply increases after it is put into operation. If the progress of the project exceeds expectations, molybdenum prices will be under pressure.