(Report Producer/Analyst: Debang Securities, Zhai Kun, Zhang Chongxin, Gao Jiaqi, Gu Yu, Kang Yuhao)
1. Pure molybdenum metal target, the performance reached a new high
1.1. An old molybdenum company with relatively concentrated equity
The company is a leading molybdenum enterprise with a whole industry chain.
The company is a professional supplier of molybdenum with strong influence in the global molybdenum industry, mainly engaged in the production, sales, research and development of molybdenum series products and the trade and operation of molybdenum related products, and is committed to building the "aircraft carrier" of China's molybdenum industry, actively promoting the high-quality and sustainable development of the molybdenum industry, creating a world-class molybdenum industry enterprise with global competitiveness, and leading the development of the global molybdenum industry.
From the first quarter to the third quarter of 2023, the net profit attributable to the parent company was 2.3 billion yuan, a year-on-year increase of 140%.
The company went public in 2008 and the molybdenum business continued to expand.
In 2007, the company was established by Jinduicheng Group, TISCO Group, CNMC Ningxia Oriental Group and Baosteel Group, and was listed on the Shanghai Stock Exchange in April 2008, making it the first listed company in the molybdenum industry in the A-share market.
From 2010 to 2015, the company's production line expanded rapidly, with an annual output of 39,000 tons of multi-chamber furnace roasting molybdenum concentrate production line and 10,000 tons of mineral processing production line were put into operation.
In 2018, the group settled in Weinan High-tech Zone after restructuring and optimization.
In 2020, it became a shareholder of Jilin Tianchi Molybdenum, and its scale continued to expand.
In H1 2023, the company's operating performance hit the best level in the same period in history.
Equity concentration, Jincheng Dui Molybdenum Group Co., Ltd. holds the largest shares.
According to the company's third quarter report for 2023, the company's current controlling shareholder is Jinduicheng Molybdenum Group Co., Ltd., with a shareholding ratio of 72.02%, followed by Hong Kong Securities Clearing Co., Ltd., Liu Huanbao, Taiyuan Iron and Steel (Group) Co., Ltd., and Mo Changchun, with shareholding ratios of 1.83%, 0.60%, 0.54% and 0.39% respectively.
1.2. Profitability continued to improve at a high rate, with the molybdenum business contributing the main profit
The growth rate of operating income continued to increase. In terms of operating income, in 2022, the company achieved a total operating income of 9.531 billion yuan, a year-on-year growth rate of 19.53%, and the revenue growth rate continued to increase, and in 2023Q1-Q3, the company achieved a total operating income of 8.853 billion yuan, a year-on-year growth rate of 25.29%, and in terms of revenue structure, the company's molybdenum furnace business revenue accounted for the highest proportion of 60.8% in 2022. followed by molybdenum metal, molybdenum chemical industry, and others, accounting for 18.2%, 13.6%, and 7.4% of revenue, respectively.
The gross profit growth rate continued to increase, and the molybdenum business was the main source of profit for the company.
In terms of gross profit, the company achieved a gross profit of 3.314 billion yuan and a gross profit margin of 34.77% in 2022, a gross profit of 4.243 billion yuan and a gross profit margin of 47.93% in 2023Q1-Q3, and a gross profit structure of 62.80% in 2022.
followed by molybdenum metal, molybdenum chemical industry, and others, with gross profit accounting for 19.25%, 17.48%, and 0.5% respectively. Molybdenum-related businesses accounted for nearly all gross profit percentage.
The company's expense ratio is relatively stable, and the profit level continues to increase highly.
In terms of expenses, the company's sales, management, R&D, and financial expense ratios were 0.33%, 4.73%, 2.11%, and -0.33% in 2022, respectively, and the sales, management, R&D, and financial expense ratios of the company in 2023Q1-Q3 were 0.26%, 3.85%, 2.11%, and -0.24%, respectively, and in terms of net profit attributable to the parent company, the company achieved a net profit attributable to the parent company of 1.335 billion yuan in 2022, a year-on-year increase of about 169.76%, and in 2023Q1-Q3 The company's net profit attributable to the parent company was 2.337 billion yuan, a year-on-year increase of about 140.11%.
Figure 9: The company's expense ratio Figure 10: The company's net profit attributable to the parent company
2. The supply of molybdenum is limited, and the development of new energy expands the demand space
2.1. Supply: The investment cycle is long, and the capacity growth is limited
The mainland is the world's largest molybdenum ore reserves, accounting for 30.83% of the world's reserves. As of the end of 2022, China's molybdenum ore reserves were 3.7 million metric tons, ranking first in the world, accounting for 30.83% of global reserves.
At the end of 2022, the world's molybdenum ore reserves were 3.7 million metric tons, 2.7 million metric tons, 2.4 million metric tons, 1.4 million metric tons, and 430,000 metric tons, accounting for 30.83%, 22.50%, 20%, 11.67%, and 3.58%, respectively. For many years, the proportion of molybdenum ore reserves in the mainland has been in the forefront of the world's reserves.
China, South America, and North America are among the top producers of molybdenum.
In 2022, the global molybdenum production will be 262,100 tons, of which the continental molybdenum production will be 112,800 tons, accounting for 43.03%, the South American molybdenum production will be 75,600 tons, accounting for 28.85%, the North American molybdenum production will be 50,800 tons, accounting for 19.40%, and the molybdenum production in other regions will only account for 8.72%.
Most of the overseas molybdenum mines are associated mines, and the increase in production is limited.
According to the data of the International Molybdenum Association, two-thirds of the world's molybdenum ore is associated mineral, and most of the molybdenum overseas is associated with copper ore, mainly from porphyry molybdenum ore, porphyry copper ore and other ores.
From the perspective of global copper supply, the supply of copper has been relatively stable in recent years. In 2022, global copper concentrate production was 21.811 million tons, a year-on-year increase of 3.37%.
At present, a number of large overseas molybdenum mines and associated molybdenum mines have experienced the problem of declining mining volume, selected grade and recovery rate, and the production of overseas molybdenum mines has decreased, and it is expected that this situation will be difficult to change in the short term, and the release of overseas molybdenum mine production is limited.
In 2020-2022, overseas molybdenum production will decrease, and domestic molybdenum production will increase.
In 2022, affected by factors such as the epidemic and declining grades, overseas molybdenum production declined. In 2022, the output of molybdenum in South America was 75,600 tons, down 8.07% year-on-year, the output of molybdenum in North America was 50,800 tons, down 12.8% year-on-year, and the output of molybdenum in other regions was 22,900 tons, up 2.4% year-on-year. In 2022, the mainland's molybdenum production was 112,800 tons, an increase of 11.8% year-on-year.
Most of the molybdenum ores in China are large-scale mines, with molybdenum as the main minerals and low grades.
In terms of mineral resources, molybdenum deposits in mainland China mostly exist in the form of molybdenum as the main mineral and associated with other components, accounting for 64% of the total reserves, 14% of molybdenum as a single mineral deposit, and 22% of the associated ores with molybdenum as a by-product.
In terms of grade, the mainland molybdenum ore grade is low, with 65% molybdenum ore grading less than 0.1%, and only 5% molybdenum ore above 0.2%.
The domestic molybdenum price has been depressed for a long time, and the future increase is limited.
In terms of price, since 2006, when molybdenum prices began to fall rapidly, molybdenum prices in mainland China have continued to be sluggish, and there will be a correction trend from 2021.
According to Wind data, from 2009 to 2020, the annual average price of domestic 1# molybdenum (≥99.95%) remained at the level of 180-310 yuan/kg, which was significantly lower than 887.5 yuan/kg in 2006.
In terms of future increment, taking Anhui Shapinggou Molybdenum Mine as an example, according to the "Development and Utilization Plan for Shapinggou Molybdenum Mineral Resources of Anhui Gold and Molybdenum Mining Co., Ltd.", the designed ore production capacity of Anhui Shapinggou Molybdenum Mine is 10 million tons/year, the project construction period is 4.5 years, and the total investment is expected to be 7.2 billion yuan, of which the construction investment is 6.4 billion yuan, and the average annual output of molybdenum concentrate containing 27,200 tons of molybdenum after completion and production, and the payback period is 10.4 years (including 4.5 years of construction period).
The characteristics of long project construction time and high capital investment limit the future production capacity increase of the industry to a certain extent.
2.2. Demand: The consumption of special steel has risen upward, and the development of new energy has driven the growth of demand
2.2.1. Steel consumption declined, and high-end steel production increased
Molybdenum is widely used in steel materials such as alloy steel, stainless steel and high-speed steel.
Molybdenum has a wide range of applications in the field of steel, alloy steel contains molybdenum 3%-4% molybdenum, which can be used in transportation equipment, industrial machinery, etc., stainless steel contains molybdenum 4%-5% can be used for precision chemical instruments, and high-speed steel containing molybdenum 4%-9.5% can be used to manufacture high-speed cutting tools. In addition, molybdenum is used in alloys, high-strength steels, high-quality carbon steels, and cast iron.
In 2022, the apparent consumption of molybdenum concentrate in mainland China increased, and engineering steel and stainless steel were the most important consumption areas of molybdenum.
In 2022, the apparent consumption of molybdenum concentrate in mainland China was 240,300 tons, a year-on-year increase of 8.93%.
Engineering steel and stainless steel are the most important consumer areas of molybdenum.
In terms of excluding molybdenum recovered from scrap, according to the statistics of the International Molybdenum Industry Association, the total primary consumption of molybdenum sub-industries in 2022 reached 286,400 tons, mainly concentrated in the steel field, of which 38% was used for engineering steel and 25% was used for stainless steel. Tool steels and high-speed steels account for 8% of consumption.
In 2023, the monthly steel recruitment of molybdenum concentrate in mainland China is at a high level, and it has declined recently. In July 2023, the total amount of molybdenum concentrate steel in mainland China was 13,300 tons, which was at the highest level in the past five years.
Recently, the total amount of steel recruitment has been reduced, and as of October 2023, the volume of molybdenum concentrate steel recruitment is 7,400 tons.
Steel consumption is stable, and high-end steel production is increasing. In recent years, steel consumption in mainland China has declined, and the apparent consumption of steel in September 2023 was 110 million tons, an increase of 5.8% year-on-year.
In the past few years, the market size of the special steel industry has expanded rapidly, reaching 555.863 billion yuan in 2021, a year-on-year increase of 7.36%.
2.2.2. The development of the new energy industry drives the growth of demand, and molybdenum has a broad space for development
The development of the new energy industry has driven the growth of demand for molybdenum. Molybdenum has the properties of high temperature corrosion resistance, low specific impedance and environmental protection, and can be widely used in the field of new energy.
In this field, molybdenum is mainly used in lithium carbonate, lithium hydroxide reactors, wind power castings and other subdivisions, with the growth of the new energy sector, molybdenum application scenarios are also growing rapidly.
In the photovoltaic sector, molybdenum can be used as a raw material for the electrode layer of CIGS thin-film photovoltaic cells, and global production of thin-film solar cells continues to increase.
Molybdenum sputtering target is a raw material for the preparation of thin film materials by sputtering method, and molybdenum can be used as the back electrode material for thin film solar cells.
Molybdenum, which is used as the back electrode in CIGS thin-film photovoltaic cells, not only acts as an electrode for solar cells, but also reflects light that is not completely absorbed to improve the conversion efficiency of solar cells.
In 2022, the global production of thin-film solar cells was about 9.2GW, a year-on-year increase of 11.11%. Since 2018, global thin-film solar cell production has continued to grow.
In the field of wind power, molybdenum-containing alloy steel is widely used in wind turbine components. Among the power components of wind turbines, molybdenum-containing alloy steel is the most widely used, including drive shafts and gear components. In the trend towards lightweight wind turbines, ductile iron castings and ultra-high-strength steel plates play an increasingly important role in powertrain frames and housings.
Figure 29: Molybdenum used in the wind power industry
Molybdenum plays an important role in the lightweighting of heavy-duty vehicles.
According to the International Molybdenum Association, a new steel development project on Continental has shown that the use of an improved steel with a strength of 670 MPa has reduced the weight of the truck's trailer beam by 27 percent compared to the original 520 MPa steel. This is due to the new steel grade (0.2% molybdenum) with higher strength and thinner thickness.
This study found that the higher strength steel is used as a major component of the truck and has the best price/performance ratio. These new, lighter components cost no more and are even lower than those made of conventional steel. The result is a win-win situation for both the vehicle manufacturer and the environment, with great potential for application.
Figure 30: New steel grades are cost-effective Figure 31: New steel grades reduce trailer beam weight by 27% for trucks
3. The company's output is stable, and the company will raise additional funds to enhance its competitiveness
The company has abundant resource reserves. At present, the company has the mining rights of Jinduicheng molybdenum mine and Ruyang Donggou molybdenum mine.
Among them, Jinduicheng molybdenum mine is one of the world's six major primary molybdenum mines, with high-quality products suitable for deep processing, with ore resources of 465 million tons, an average grade of 0.083% and a service life of 35 years, and Ruyang Donggou molybdenum ore resources of 471 million tons, an average grade of 0.12% and a service life of 57 years. The total attributable molybdenum resources are approximately 1.5 million tonnes of metal.
In 2022, the output of the company's main products will be stable. In 2022, the output of the company's main products increased, and the annual production of main molybdenum products equivalent to molybdenum metal was: 15,146 tons of ferro-molybdenum, a year-on-year increase of 12.47%, 6,213 tons of ammonium molybdate, a year-on-year decrease of 0.06%, and 4,947 tons of molybdenum powder, a year-on-year increase of 11.08%.
From 2019 to 2021, the company's molybdenum concentrate (converted metal amount) production was stable. From 2019 to 2021, the company's molybdenum concentrate (metal volume) output was 22,600 tons, 22,300 tons, and 21,200 tons, respectively.
The company's related upgrading and transformation projects have been implemented one after another.
In May 2022, the company released a plan for non-public issuance of A-shares, and the total amount of funds raised is expected to be no more than 1.9 billion, which will be used for the overall beneficiation and upgrading project of Jinduicheng molybdenum mine, the upgrading and transformation project of molybdenum roasting low-concentration flue gas acid production and the replenishment of working capital.
In terms of the overall beneficiation and upgrading project of Jinduicheng molybdenum mine, through the implementation of the transformation project, it can not only fully produce 57% high-quality molybdenum concentrate, but also partially produce 57% high-quality molybdenum concentrate and 52% molybdenum concentrate, which is more in line with the actual needs of the company's downstream molybdenum industry.
In terms of the upgrading and transformation project of molybdenum roasting low-concentration flue gas acid production, the company has greatly reduced the output of sulfuric acid, reduced the amount of exhaust gas, waste acid and reduced the cost of terminal treatment by replacing the original production system with advanced equipment, and the sulfuric acid produced was of higher quality and better marketable.
4. Earnings forecasts and valuations
4.1. Forecasts
Molybdenum business: Assuming that the average price of molybdenum in the next three years will be 4200, 4300 and 4300 yuan/tonne respectively.
It is estimated that the revenue from 2023 to 2025 will be 130.2, 13.33 and 13.33 billion yuan, the gross profit will be 63.5, 6.58 and 6.58 billion yuan, and the gross profit margin will be 48.8%, 49.4% and 49.4% respectively.
Other businesses: Other businesses account for a relatively small proportion overall, assuming that their revenue growth rate and gross profit margin remain average for three years.
It is estimated that the revenue from 2023 to 2025 will be 4.0, 2.1, and 110 million yuan, the gross profit will be 0.1, 0.1, and 0.0 billion yuan, and the gross profit margin will be 2.7%, 4.1%, and 3.0%, respectively.
4.2. Valuation
We use the relative valuation method, as a leading company in the molybdenum industry, the company's business is relatively subdivided, and there are fewer comparable companies, and we use CICC Gold and China Molybdenum to compare two companies whose main business contains molybdenum.
According to our estimates, the average valuation of major companies in the industry in 2023, 2024, and 2025 is 15.7, 13.3, and 12.8 times. Based on the judgment of the industry's prosperity and the company's high industry status, we believe that the company is expected to enjoy a certain valuation increase.
5. Risk Warning
Downstream steel demand is less than expected, national safety and environmental protection regulatory policies have changed significantly, and mining accidents.
Downstream steel demand is less than expected: If the downstream steel demand, especially special steel, is less than expected, the company's product sales may be affected, which will affect profits.
Significant changes in national safety and environmental protection regulatory policies: If there is a significant change in national safety and environmental protection regulatory policies, it may have a certain impact on the company's mine production activities.
Mining accidents: or occasional mining accidents, the company's production and business activities may be affected to a certain extent.
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