Key points of investment
Incident: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 3.40 billion yuan, +6.15% year-on-year, realized net profit of 144 million yuan, -29.21% year-on-year, and realized net profit of 135 million yuan without return to mother, or -20.41% year-on-year. Q4 2023 achieved operating income of 882 million yuan, +26.54%/10.94% month-on-month; realized net profit attributable to mother/net profit of 0.34/54 million yuan, +30.77%/+145.45% year-on-year, and +41.67%/+237.50% month-on-month.
The subsidiary Ganzhou Aoketai increased its sales expenses and losses due to falling inventory prices. The decline in the company's 2023 performance was mainly due to increased market development efforts and sales expenses for Ganzhou Auctein, a wholly-owned subsidiary of the company. In addition, inventory price drop losses were calculated for some inventory items. Sales expenses and inventory price decline losses increased by 0.28/33 million yuan respectively over the same period last year, and Auctech's net profit fell by 52 million yuan.
Competition for tungsten powder products intensified, and the gross margin of hard alloy products increased. By business, the company's tungsten carbide powder/ tungsten powder/ alloy/ other business/ other products contributed 1.15/0.89/1.04/1.43/0.43 billion yuan, with gross margins of 8.94%/9.18%/14.30%/64.58%/28.84%, respectively. Compared with 2022 -1.54/-0.25/+0.49/-8.27/+0.67/+1.03pct, the overall gross margin decreased by 0.55pct. The decline in gross margin of tungsten carbide powder and tungsten powder was mainly due to the 4.26% year-on-year increase in the price of raw material black tungsten concentrate in 2023, and industry competition intensified; other businesses were mainly affected by market price fluctuations, and hard alloy products were driven by the increase in production and sales volume of high-end blade alloy products, and gross margin increased 0.49% year on year. Among them, the unit price of Ganzhou Oktai blades was 14.95 yuan/piece, up 0.19% from the previous year, and the unit price of hard alloy fell 7.17% from the previous year.
Production and sales are growing steadily. In terms of mine production, the company's tungsten concentrate (65%) /tin metal output reached 4154/882 tons, +5.64%/6.23% year-on-year. In terms of tungsten products, the sales volume of tungsten powder/tungsten carbide powder/thermal spray powder was 4175/4913/442 tons, +3.31%/+2.28%/+18.50% compared to the same period; the sales volume of hard alloy/Ganzhou Aucetai hard alloy (blade) /hard alloy (bar) in the company headquarters was 1104 tons/20411,000 pieces/688.82 tons, compared with +10.28%/+6.71%.
Resource reserves are abundant, and there is great potential to increase storage and expand production. The company has 6 mining rights mines, 8 prospecting rights mining areas, with tungsten resource reserves of 94,600 tons, tin resource reserves of 17,900 tons, and 12,900 tons of copper resources. Among them, the integrated plan of Taoxikeng tungsten mine and Dongfeng prospecting rights has been approved by the Ministry of Natural Resources; the prospecting effect of Dayu Shilei tungsten ore is remarkable. The underground renovation and expansion project has completed project research, plan design, and safety review. The Dayu Shilei tungsten mine tailings storage project is being implemented, and the infrastructure for dam 1 has been completed; Huangzhulong tungsten mine completed underground drilling chamber construction and construction of bridges and stones Borehole prospecting work was carried out in the three prospecting rights areas of Zunao and Mud Pit, and some tungsten-containing quartz veins were discovered.
Investment advice: Since 2024, domestic and foreign manufacturing industries have been recovering. Sales of the company's hard alloy, tungsten powder and other products will improve, and high-end blades will continue to be released. We expect the company to achieve operating income of 36.78/39.64/4.256 billion yuan in 2024/2025/2026, up 8.17%/7.78%/7.37% year-on-year respectively; net profit to mother was 2.07/235/259 million yuan, respectively, up 43.97%/13.35%/10.07%, corresponding EPS 0.17/0.20/0.22 yuan
Based on the closing price on April 24, 2024, the corresponding PE corresponding to 2024-2026E was 37.56/33.14/30.11 times, respectively. The first coverage gave the company a “buy” rating.
Risk warning:
Risk of falling metal prices, risk of changes in equity, risk of policy changes, risk of production and sales falling short of expectations, etc.