(Report producer/analyst: China Merchants Securities, Liu Wenping, Jia Hongkun)
1. Deeply cultivated the tungsten industry for more than 20 years to achieve the layout of the whole industrial chain
1. The company lays out the whole industrial chain of tungsten industry
Chongyi Zhangyuan Tungsten Industry Co., Ltd., located in the "tungsten capital of the world" - Ganzhou City, Jiangxi Province, the company has been deeply engaged in the tungsten industry for more than 20 years, from a small enterprise based on mining and beneficiation, rapidly developed into a group enterprise integrating tungsten mining, smelting, milling and cemented carbide production and deep processing and trade, and was listed on the Shenzhen Stock Exchange in 2010.
The company is mainly engaged in tungsten concentrate as raw material, ammonium paratungstate (APT), tungsten oxide, tungsten powder, tungsten carbide powder, thermal spraying powder and cemented carbide and other products production and sales, has established "upstream mining and beneficiation - midstream smelting - downstream deep processing" complete integrated production system, is one of the domestic tungsten industry to achieve the whole industrial chain layout of enterprises.
2. The shareholding structure is centralized and stable
The company's shareholding structure is relatively concentrated and stable, and Huang Zelan is the actual controller of the company.
As of the first quarter of 2023, Chongyi Zhangyuan Investment Holdings Co., Ltd. is the largest shareholder, with a shareholding ratio of 60.65%, and the company's chairman Huang Zelan holds 94% of the equity of Chongyi Zhangyuan Investment Holdings Co., Ltd. and is the actual controller of the company.
In the first quarter of 2023, five new funds became the top ten shareholders of the company, including the National Social Security Fund 504 Portfolio (0.46% shareholding), Industrial and Commercial Bank of China Co., Ltd.-China Commercial New Industry Flexible Allocation Hybrid Securities Investment Fund (0.35% shareholding), etc. In addition, three of the company's top ten shareholders are natural persons, with a total shareholding of 1.82%.
Mr. Huang Zelan, chairman of the company, also serves as the chairman of the presidium of China Tungsten Industry Association, the director of China Nonferrous Metals Industry Association, and the vice chairman of Ganzhou Federation of Industry and Commerce, enjoying a high status in the industry.
3. Rich product range, covering the whole tungsten industry chain
The company's products cover the tungsten industry chain, the upstream products are mainly tungsten concentrate, ammonium paratungstate (APT), the midstream products are mainly tungsten powder, tungsten carbide powder, and the downstream products are mainly thermal spray powder, cemented carbide, coated blades and bars.
Upstream: Tungsten concentrate is a product that reaches the concentrate standard after ore processing and processing, and is the main raw material for tungsten smelting series products, which is produced by the company's mines. Ammonium paratungstate (APT) is a raw material end product, which is obtained by the hydrosmelting of tungsten concentrate, and the ammonium paratungstate series products produced by the company mainly include single crystal ammonium paratungstate and recrystalline ammonium paratungstate, produced by the company's headquarters.
Midstream: Tungsten powder is a midstream product of the tungsten industry chain, which is prepared by tungsten oxide as raw material and then reduced by hydrogen, mainly used as raw materials for tungsten processing and tungsten carbide powder production, which is produced by the company's headquarters. Tungsten carbide powder is also a tungsten midstream product, which is the product of tungsten powder charcoal and then high-temperature carbonization, which is the main raw material for the production of cemented carbide, which is produced by the company's headquarters.
Downstream: Thermal spraying powder is a downstream product of tungsten industry chain, which is an alloy powder prepared by ball milling, spray granulation, sintering, crushing and screening, batching and other production processes with tungsten carbide, chromium carbide, cobalt, nickel, etc., which is produced by the company's headquarters, and its wholly-owned subsidiary Zhangyuan Spraying provides spraying services.
Cemented carbide is an alloy material made of carbides of one or more refractory metals (such as tungsten carbide and titanium carbide) as the hard phase, cobalt, nickel and iron as the bonding phase, and sintered by powder metallurgy method, which is produced by the company.
The coated blade is a high-performance, high-precision, high-value-added tungsten product, which is obtained by coating refractory metal or non-metallic compounds with better wear resistance on the surface of cemented carbide blades by vapor deposition technology. Bar is a round bar type cemented carbide product manufactured by a process such as molding or extrusion. The coated blades and bars are produced by its wholly-owned subsidiary, Autech.
In terms of operating income, tungsten powder, tungsten carbide powder and cemented carbide products dominate the position, accounting for a total of 87.46% in 2022, contributing nearly ninety percent to the company's revenue, and in recent years, the company's revenue structure is relatively stable.
Second, upstream: sitting on tungsten ore resources, benefiting from the rise in tungsten prices
1. Mainland tungsten resources are abundant, and domestic tungsten mining tends to tighten
Tungsten is a scarce strategic resource, the mainland is rich in tungsten resources, tungsten reserves and mine tungsten production is the world's first.
In 2022, the global tungsten resource reserves will be about 3.8 million tons, and China's tungsten resource reserves will be 1.8 million tons, accounting for the largest proportion of 47.4%; The global mine tungsten output is about 84,000 tons, and China's mine tungsten output is 71,000 tons, accounting for the largest proportion of 84.5%. China's tungsten ore production and reserves have obvious advantages.
At present, the mainland implements total control over tungsten ore mining, and the increase in mining volume indicators has been significantly tightened in recent years.
From 2020 to 2022, the total mining control index of tungsten concentrate increased by no more than 3% year-on-year, and the total mining control index of tungsten concentrate (65% WO3) in 2022 was 109,000 tons, an increase of 1,000 tons over the same period in 2021, a year-on-year increase of only 0.93%. At the same time, domestic tungsten concentrate production is relatively stable, fluctuating from 6.5-71,000 tons in 2018-2022, which is 63-66% of the mining quota.
The industry generally has the phenomenon of low utilization rate of mining indicators, mainly due to the depletion of resources, high operating costs, touching ecological redline areas and other reasons to reduce production or even stop production, resulting in tungsten concentrate production in the index is lower than the actual demand, and the gap is partially filled by the output outside the index (such as imports, etc.), thereby reducing the completion rate of the index overall.
2. Rooted in the world's tungsten capital, rich resource reserves
Among the world's top ten tungsten mines, China occupies 6, and Jiangxi's tungsten resources are particularly rich, which is conducive to the company's resource security. At present, the world's largest tungsten ore Zhuxi and Dahutang are located in Jiangxi, which accounts for 60% of the country's tungsten resource reserves.
The company has 6 mining rights mines and 8 prospecting right mining areas.
In 2022, the company's mining rights retain 94,600 tons of tungsten resource reserves, tin resource reserves of 17,600 tons and copper resource reserves of 12,800 tons. In 2022, the company's tungsten ore mining quota is 5480 tons, it is expected that the quota in 2023 will be consistent with 2022, with the gradual advancement of mine technological transformation and mine integration, the company's tungsten ore production is expected to be further improved, the company's tungsten ore production cost is low, and the profitability of the mine end is strong.
The company is one of the few enterprises in China with the ability to produce tungsten concentrate by itself, and the self-sufficiency rate of tungsten concentrate has reached 20%, which is a high level in the industry. In 2022, the company's tungsten concentrate production will be about 4,000 tons (65% WO3). Tungsten concentrate production is expected to remain stable in 2023.
3. Sitting on quartz sand raw materials, it is expected to open a new growth pole
Quartz sand, also known as silica sand, is a silica material processed or chemically synthesized by natural crystal and quartz minerals, which is widely used in casting, building materials, electric light sources, optical fibers, photovoltaics, semiconductors and other fields. Quartz sand is graded according to purity, the higher the purity, the higher the application field.
Downstream demand is high, and the volume and price of high-purity quartz sand are rising.
In recent years, due to the release of demand in downstream fields such as photovoltaics and semiconductors, the supply and demand of high-purity quartz sand have continued to be tight, and the price has increased significantly while the output has increased.
Taking the domestic quartz sand leading enterprise Quartz Co., Ltd. as an example, in 2022, the export sales volume of high-purity quartz sand will be 30,836 tons, a year-on-year increase of 119.21%, and the average export price of high-purity quartz sand will be 39,386.97 yuan / ton, an increase of 83.52% year-on-year.
High-purity quartz sand can be further subdivided, and there are significant differences in price and profit margins.
According to purity and use, high-purity quartz sand can be divided into more refined categories, and the categories with high purity and good performance are more scarce, the price is higher, and the profit margin is larger. For example, according to the data of China Powder Network and Shanghai Nonferrous Metal Network, the current price of high-purity quartz sand for optical products is only 48,000 yuan / ton, the price of high-purity quartz sand for the outer layer of quartz crucible is 12-130,000 yuan / ton, and the price of high-purity quartz sand for the inner layer of quartz crucible is as high as 34-370,000 yuan / ton.
The company has abundant quartz stone resources.
The ore body of the company's mine belongs to the quartz vein black tungsten type, and the black tungsten ore is associated with the quartz vein. In 2022, the company focused on the geological exploration of Bikeng, Mud Pit and Shizui Brain Prospecting Rights and deep prospecting in the mining rights of Xin'anzi Tungsten Mine and Dayu Shilei Tungsten Ore, and found more than 630 quartz veins through the pore exploration of key areas, and at the same time found many quartz veins in the depths, and achieved remarkable results in prospecting and exploration.
Quartz sand is expected to become a new growth point for the company. At present, the company has sent the quartz stone produced by the mine to a number of institutions for testing, and demonstrated the comprehensive application plan, although there is still great uncertainty in the current conclusion, if the company can produce high-purity quartz sand, it will enjoy the dividends of this high-speed growth track and expand a new powerful growth point.
Third, the middle and downstream: tungsten powder and cemented carbide continue to increase, and the profitability of thermal spraying powder is considerable
1. Midstream: The company's tungsten powder and tungsten carbide powder continue to increase, and the production capacity is ideal
Tungsten powder is one of the midstream products of tungsten, which is a product prepared by hydrogen reduction of tungsten oxide as raw material, mainly used for tungsten processing and tungsten carbide production, divided into ultrafine tungsten powder and ultra-coarse tungsten powder. Tungsten carbide powder also belongs to the midstream product of tungsten, which is a product of high-temperature carbonization of tungsten metal powder, mainly used for the production of cemented carbide, which can be divided into ultrafine tungsten carbide powder and ultracoarse tungsten carbide powder.
Tungsten powder and tungsten carbide powder are the main products in the middle of the company's tungsten industry chain, and have continued to increase in recent years. In 2022, the sales volume of tungsten powder will be 4041.07 tons, with a compound growth rate of 24.97% from 2020 to 2022; In 2022, the sales volume of tungsten carbide powder will be 4803.69 tons, with a compound growth rate of 32.57% from 2020 to 2022. While the product sales volume is rising, the price trend is also more ideal, making the revenue show a more considerable growth, tungsten powder operating income in 2022 is 949 million yuan, 2020-2022 compound growth rate of 43.32%; In 2022, the operating income of tungsten carbide powder will be 1.102 billion yuan, with a compound growth rate of 51.21% from 2020 to 2022.
The company is a leading enterprise in the middle stream of the tungsten industry chain, and the landing of new projects has boosted the climb of production capacity. According to the statistics of China Tungsten Industry Association, in 2022, the company's tungsten powder production ranked first in the domestic industry, and tungsten carbide powder output ranked second in the domestic industry.
The first phase of the company's ultra-high-performance tungsten powder intelligent manufacturing project has been completed in December 2022 and officially put into production in January 2023, bringing an increase of 2,500 tons to the company's tungsten carbide powder production capacity. As of April 2023, the company's production capacity of tungsten powder is 15,000 tons, and the production capacity of tungsten carbide powder is 13,100 tons.
After the new project capacity is fully landed, the company's tungsten carbide powder production capacity is expected to reach 15,600 tons, an increase of 19.08%. In addition, after the completion of the project, the company can realize the independent production line production of fine-grain, medium-granular and coarse-grained powder products, and customize higher quality and higher consistency characteristic products for customers.
The company's current midstream product production capacity is significantly larger than the actual output, or because the company is actively exploring the market and producing various specifications of powder products to meet different customer needs, category expansion is first, and the production capacity is formed earlier than the order volume.
2. Downstream
(1) Cemented carbide: The volume and price of coated inserts have risen, and Aoxtai has achieved a reversal of difficulties
The company's cemented carbide series products include cemented carbide, blades, bars. As of 2022, the company's cemented carbide production capacity is 1,500 tons/year. The company's carbide tools and bars are produced by Ganzhou Aoketai, a wholly-owned subsidiary, of which the production capacity of high-performance cemented carbide precision tools is 20 million pieces / year, and the production capacity of cemented carbide bars is 1000 tons / year.
Ganzhou Aoketai, a wholly-owned subsidiary of the company, is mainly engaged in the research and development, production and sales of cemented carbide coated blades, bars and their tools. Aoketai has advanced production, testing equipment and excellent R & D team, positioned as "cutting experts for difficult-to-machine materials", and is committed to providing customers with customized metal processing services.
The coated blades produced by Ganzhou Aoketai have been turning, milling and drilling of steel parts, stainless steel, cast iron, aluminum alloy, high temperature alloy and high hardness steel, and are widely used in CNC machine tools, petroleum, electric power, steel, aerospace and other fields. Ganzhou Aoketai can produce solid, straight hole, spiral hole bar, mainly used to manufacture solid carbide tools.
Bar is a round bar type cemented carbide product manufactured by a process such as molding or extrusion. It is mainly used to manufacture solid carbide tools, such as PCB drills, end mills, twisting tools, hole machining and other cutting tools.
In the past three years, the company's bar business has continued to improve, and sales volume and sales revenue have maintained growth, but the growth rate has slowed down significantly.
In 2022, the company's bar sales revenue will be 213 million yuan, with a compound growth rate of 50.53% from 2020 to 2022. At present, the pace of expansion of the company's bar business has slowed down or due to the fierce competition in the bar market, and the company's current product volume is insufficient, and it is still in a negative gross profit state, and the company has decided not to expand production for the time being.
Coated blade (also known as CNC insert) is a high-performance, high-precision, high-value-added tungsten product, which is a blade obtained by coating refractory metal or non-metallic compounds with better wear resistance on the surface of cemented carbide blades by vapor deposition technology.
Tool is a tool for cutting processing in mechanical manufacturing, also known as cutting tool, through welding, clamping and other ways, the blade and a variety of tool holders are assembled, widely used in CNC machine tools, petroleum, electricity, steel, aerospace and other fields of various industrial cutting processing.
In the past three years, the company's coated blade business has continued to improve, and sales volume and price have maintained rapid growth. In 2022, the company will achieve sales of 17 million coated blades, with a compound growth rate of 26.64% from 2020 to 2022, and sales revenue of 239 million yuan, with a compound growth rate of 32.57% from 2020 to 2022. It is estimated that the average sales price of coated blades in 2022 is 14.04 yuan / piece, and the unit price of blades will also increase year by year from 2020 to 2022.
Auketai's performance continued to grow, and it began to turn a profit in 2021.
Auketai will achieve revenue of 501 million yuan in 2022, with a compound growth rate of 40.71% from 2018 to 2022. In the early days of its establishment, Auketai suffered losses for many years, or because its brand positioning was relatively high-end, the initial investment was large.
In recent years, Auketai has adhered to the strategy of "profit as the core", adjusted sales strategies, optimized product structure, improved production capacity, strictly controlled costs and expenses, improved the construction of talent system, gradually applied layout to the industry, developed key core customers in automobile, aerospace, engineering machinery, 3C small parts and other industries, and successfully turned losses into profits in 2021. The net profit of that year was 1.7528 million yuan, and after that, in 2022, the profitability was further enhanced, and the net profit was 2.7488 million yuan, a year-on-year increase of 56.82%.
(2) Thermal spray powder: business growth is rapid, gross profit margin is considerable
Thermal spraying powder, mainly tungsten carbide, chromium carbide, cobalt, nickel, etc. as the main raw materials, after ball milling, spray granulation, sintering, crushing and screening, batch and other production processes, is an alloy powder.
Through the supersonic flame spraying method, these powders with different characteristics are instantly heated, and sprayed to the surface of the workpiece with high-speed hot air flow to form a strengthening layer to improve the wear resistance, corrosion resistance, high temperature resistance, fatigue resistance, oxidation resistance and repair of the surface of the workpiece.
Thermal spray powder has a wide range of applications, mainly involving the enhancement of surface performance and repair of petroleum, steel, papermaking, automobile, military, aerospace, shipbuilding industry, water conservancy and electric power, mechanical processing and new energy industries. The spraying powder is produced by the company's headquarters, and the subsidiary Dezhou Zhangyuan Spraying provides spraying services.
The company's thermal spray powder business is small, growing fast and has strong profitability.
The company's sales volume of thermal spray powder in 2022 was 373 tons, a year-on-year increase of 43%. Zhangyuan Spraying's current customers include domestic and foreign oil service enterprises, new energy battery manufacturers, etc., and its business performance continues to grow: in 2022, the operating income will be 24.31 million yuan, a year-on-year increase of 63%, and the net profit will be 2.72 million yuan, a year-on-year increase of 32%. In the first quarter of 2023, the operating income was 10.16 million yuan and the net profit was 830,000 yuan.
The company's thermal spray powder is currently classified as "other products" and its gross margin remains at a high level. From 2020 to 2022, the gross profit margin of the company's thermal spraying powder is 33.65%, 30.90% and 28.17%, respectively, which is significantly higher than the company's other powder products (tungsten carbide powder, tungsten powder).
3. Demand is approaching the inflection point, and tungsten prices can be expected
The gap between supply and demand is expected to drive up tungsten prices. The gap between supply and demand of tungsten concentrate in 2022 is about 2,100 tons, and it is expected that the gap will widen slightly in 2023, or promote the price of tungsten.
On the one hand, tungsten supply is limited in 2023. With the depletion of about 30,000 tons of pan-Asian stocks released in 2019 and the decline in domestic imported ore volume, the release of mine-end production capacity is limited, and the overall supply increment is small. It is estimated that the supply of tungsten in mainland China will be 66,500 tons in 2023, with a year-on-year growth rate of 1.37%.
On the other hand, tungsten consumption is expected to increase steadily in 2023. Tungsten downstream is mainly used in the field of cemented carbide, the amount is expected to benefit from economic recovery and domestic substitution and increase, in addition, photovoltaic tungsten wire, tungsten chemical and other emerging fields are expected to increase demand. It is estimated that the consumption of tungsten in mainland China will be 54,600 tons in 2023, with a year-on-year growth rate of 3.02%.
Economic recovery has pushed tungsten prices into an upward channel. From November 2022 to February 2023, tungsten prices rose. During this time period, on the one hand, affected by the reduction and suspension of production during the Spring Festival and the control of explosives held by the two sessions, the supply of raw materials was reduced; On the other hand, with the liberalization of epidemic policies and the arrival of the year-end stocking cycle, the transaction orders of downstream enterprises have increased, and market sentiment has improved significantly. From February 2023 to mid-April 2023, tungsten prices fell slightly.
After the end of the two sessions, mine production gradually recovered, but demand did not improve significantly, and the bearish sentiment in the industry heated up, resulting in a decline in tungsten prices. Since mid-April 2023, tungsten prices have resumed their upward trend and reached a new high. This year, the expectation of domestic economic recovery has strengthened, industry sentiment has turned from idling to more, and tungsten prices have returned to high levels.
Taking the company as an example, the quotation of long orders in May 2023 showed that black tungsten concentrate (55% WO3) was 119,000 yuan / ton, an increase of 3,000 yuan / ton compared with the second half of April; scheelite-tungsten concentrate (55% WO3) was 117,500 yuan/ton, up 3,000 yuan/ton from the second half of April; Ammonium paratungstate (national standard zero grade) was 181,000 yuan / ton, up 4,000 yuan / ton from the second half of April.
4. Financial analysis
1. Demand is approaching the inflection point, and tungsten prices can be expected
The company's operating income grew strongly. In 2022, the company achieved operating income of 3.203 billion yuan, a year-on-year increase of 20.23%, in 2022, the company's tungsten product sales volume increased steadily, and the revenue of major products has increased considerably, of which, tungsten powder revenue is 949 million yuan, a year-on-year increase of 18.72%, tungsten carbide powder revenue is 1.102 billion yuan, a year-on-year increase of 32.31%, cemented carbide revenue is 751 million yuan, a year-on-year increase of 10.39%.
Thanks to the rapid growth of the thermal spray powder business, the company's operating income of other products in 2022 increased by 64.92% year-on-year. The company's target revenue in 2023 is 3.3 billion yuan, with a growth rate of 3.03%, and according to the experience of previous years, the company's revenue targets have been exceeded.
At present, the company's revenue structure is stable, and in 2023, it will coordinate the three major sectors of mining, deep processing and Ganzhou Aoketai, promote mine intelligence, powder third-phase technical transformation experience promotion, and key customer development, which is conducive to achieving further growth in revenue.
The company's gross profit margin has increased for many consecutive years. In 2022, the company's gross profit margin was 15.58%, an increase of 0.48 percentage points over 2021; the gross profit margin in 2019 decreased to 6.74%, mainly due to the impact of the economic downturn and Sino-US trade frictions in that year, China's tungsten industry was generally in a downward trend, weak tungsten market demand, product market prices fell, and the cost of pre-inventory products was higher, resulting in a decline in product sales gross margin.
In terms of products, in 2022, the gross profit margin of tungsten powder was 9.43%, up 1.07 percentage points year-on-year, and the gross profit margin of tungsten carbide powder was 10.48%, up 0.14 percentage points year-on-year, mainly because tungsten powder and tungsten carbide powder are in the middle of the industrial chain, and the gross profit margin is stable; cemented carbide gross profit margin is 13.81%, up 5.83 percentage points year-on-year, mainly because Ganzhou Aoketai high-end blade products through technological innovation, product quality improvement, blade product sales and gross profit margin have increased to a certain extent.
2. The expense ratio continued to improve and the net profit continued to grow
The expense ratio gradually decreased during the company's period. The company's expense ratio for the period in 2022 was 9.05%, down 1.05 percentage points year-on-year, of which the sales expense ratio was 1.28%, up 0.04 percentage points year-on-year; the management expense ratio was 4.25%, down 0.29 percentage points year-on-year; the R&D expense ratio was 1.47%, up 0.08 percentage points year-on-year, mainly due to the company's increased investment in R&D; the financial expense ratio was 2.06%. The year-on-year decrease of 0.87 percentage points was mainly due to lower financing costs and foreign currency exchange gains due to exchange rate changes.
In 2019, the company vigorously developed new product markets, increased R&D investment, etc., the expense ratio reached a peak of 16.68% in the past five years, and then the effect of the initial investment gradually appeared, the expense ratio continued to improve, and from 2019 to 2022, the company's expense ratio decreased year by year.
The company's net profit grew steadily. In the past five years, except for 2019, the company's net profit attributable to the parent has achieved a year-on-year increase of more than 20%. In 2022, the company will achieve a net profit attributable to the parent of 203 million yuan, a year-on-year increase of 23.03%, and from 2020 to 2022, the compound growth rate of the net profit attributable to the parent will reach 134.23%.
3. Operating cash flow improved significantly, and the asset-liability ratio increased year-on-year
The company's operating cash flow improved significantly. Net operating cash flow inflow in 2022 was RMB210 million, an increase of RMB32 million over the previous year, mainly due to the increase in cash received from the return of goods from sales.
Net cash outflow from investment activities was $202 million, a decrease of $21 million from the previous year, mainly due to a year-on-year decrease in cash payments for the purchase and construction of fixed assets and other long-term assets, as well as the purchase of bank wealth management products in the previous year.
In the past five years, the company's asset-liability ratio has generally shown an upward trend, reaching 58.93% in 2021 and falling for the first time in 2022, to 58.14%, a slight decrease from the previous year, mainly due to the reduction of short-term borrowings and contract liabilities.
5. Profit forecast and company valuation
1. Profit forecast
1) Company revenue forecast:
The company's powder products (tungsten carbide powder, tungsten powder, thermal spray powder) are expected to increase in the next 2-3 years: at present, the company's tungsten carbide powder, tungsten powder capacity utilization rate is low, in the future in the development of large customers, downstream demand recovery, 5,000 tons of ultra-fine tungsten carbide powder production capacity and other factors, the company's tungsten powder, tungsten carbide powder sales will have considerable growth, thermal spray powder downstream application is extensive, business profitability is strong, and for the company's newly cultivated business, is expected to maintain rapid growth.
In terms of price, the recovery of downstream demand for tungsten in 23Q1 is less than expected, and it is expected that the marginal recovery of demand in the second half of the year may drive tungmatic prices up.
It is expected that the average sales prices of tungsten carbide powder and tungsten powder in 2023 will be 240,800 yuan / ton and 246,500 yuan / ton respectively; The thermal spray powder business is in a period of rapid increment, the company prioritizes sales volume improvement, and the price is expected to remain stable, and it is expected that the average sales price will maintain a year-on-year growth rate of 2% from 2023 to 2025, and the average sales price in 2023 will be 416,200 yuan / ton.
The company's cemented carbide business is on track with the turnaround of Aoketai, it is expected that in the future, downstream demand will turn strong, domestic substitution will continue to deepen, and coated blades will continue to rise in volume and price, promoting the continuous development of the company's cemented carbide business segment.
In terms of sales volume, considering the slow pace of downstream demand recovery in FY2023, cemented carbide sales are expected to grow by 10% year-on-year, with sales volume of 2,750 tons, and sales growth in 2024 and 2025 rising to 12% year-on-year, with sales volumes of 3,080 tons and 3,449.6 tons, respectively.
In terms of prices, the price in 2023 is expected to be the same as the previous year, both of which are 300,500 yuan / ton, and then with the improvement of downstream demand, it is expected to grow at an average rate of 3% from 2024 to 2025.
In summary, it is expected that the company's overall operating income will show a rapid growth trend from 2023 to 2025, with growth rates of 13.10%, 18.27% and 15.75% respectively.
2) Gross margin forecast:
With the increase of products in various business segments, the scale effect has emerged, and the upward trend of tungsten prices, the company's overall gross profit margin may increase slightly, and the overall gross profit margin is expected to be 15.78% in 2023.
It is estimated that the gross profit of tungsten carbide powder tons in 2023-2025 will be 25,200 yuan/ton, 28,600 yuan/ton and 31,200 yuan/ton, respectively; The gross profit of tungsten powder ton was 23,700 yuan/ton, 26,400 yuan/ton and 28,800 yuan/ton, respectively; The gross profit of cemented carbide tons was 41,500 yuan/ton, 43,300 yuan/ton and 49,400 yuan/ton, respectively; The gross profit of other products (thermal spray powder) was 117,200 yuan/ton, 119,600 yuan/ton and 122,000 yuan/ton respectively.
3) Expense ratio forecast for the period:
The company's scale continues to expand and production capacity climbs year by year, the cost advantage is gradually reflected, and the sales and management expense ratio may show a downward trend. The company attaches great importance to technological innovation and product research and development, and expects a slight increase in the R&D expense rate. The financial expense ratio was largely stable.
4) Profit forecast:
In summary, it is expected that the company's net profit attributable to the parent from 2023 to 2025 will be 236 million yuan, 329 million yuan and 411 million yuan, an increase of 16%, 39% and 25% respectively. EPS were 0.20, 0.27 and 0.34 yuan per share, respectively.
2. Valuation analysis
We selected 7 companies with similar businesses or leaders in each sector as comparable companies (Dingtai Hi-Tech and Addi Precision produce CNC tools, Boqian New Material produces metal powder materials, and Tunan produces cemented carbide, which is similar to the company's business).
From the perspective of industry median, the PE in 2023-2025 is 36.13, 26.11 and 21.33 times, respectively.
Considering that the company's integrated layout of the whole industry chain has been formed, the multi-business sector is in the expansion and growth period, and the downstream demand has greater growth space in the future, regardless of the impact of the share transfer, the company is given a PE of 37 times in 2023 (the corresponding PE after the share transfer is 48.10 times), corresponding to a target price of 9.62 yuan per share in 2023.
6. Summary of the report
The company is a backbone enterprise focusing on the tungsten industry, with tungsten powder output ranking first in the country and tungsten carbide powder output ranking second in the country.
The company grasps the wave of domestic substitution of CNC tools and cuts into the field of high-growth thermal spray powder, which is conducive to further strengthening the position of the industry, in addition, quartz sand is expected to give birth to a new growth pole.
It is expected that the company's net profit attributable to the parent in 2023-2025 will be 236 million yuan, 329 million yuan and 411 million yuan, corresponding to PE of 39.5, 28.4 and 22.7 times, and the corresponding target price is 9.62 yuan per share.
7. Risk Warning
1. Tungsten price fluctuation risk: The market price of tungsten products and the company's profit are positively correlated with the tungsten price, if the tungsten price is lower due to macroeconomic factors and other factors, it may cause the company's performance to be lower than expected.
2. The progress of the company's project is not as expected: the pace of landing of ultra-fine tungsten carbide powder production capacity may not be as expected, which will affect the company's future performance growth rate.
3. The downstream demand for products is less than expected: the sales growth of blades and bars depends on the recovery of downstream manufacturing and the promotion of domestic substitution, and there is a certain uncertainty in the above two factors, which may affect the performance of the company's downstream sector.
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