XIAMEN TUNGSTEN(600549)：A MATERIAL LEADER WITH STRATEGIC MINERAL RESOURCES AND ADVANCED MANUFACTURING

　　Core views:
　　Xiamen Tungsten is a leading materials producer with both strategic metal resources and advanced manufacturing capabilities. In 2022, the Company’s earnings grew rapidly after the launch of advanced products including fine tungsten wires for photovoltaics (PV) and high-voltage cathode materials. In 2023, tungsten and molybdenum price rises will likely bolster its earnings significantly. Moreover, the Company is among the first to build rare earth operations overseas and its magnet materials capacity is ramping up at an accelerated pace. We tweak our 2022E/23E/24E EPS forecasts to Rmb1.03/1.56/1.84 (from previous forecasts of Rmb1.07/1.44/1.70). Utilizing the sum-of-the-parts (SOTP) valuation approach, we arrive at a target market cap of Rmb45.4bn for 2023, corresponding to a target price of Rmb32. We reiterate the “BUY” rating.
　　Abstract:
　　Rapid growth driven by the improvement of three major businesses.
　　In 2022, Xiamen Tungsten achieved revenue of Rmb48.21bn (+51.3% YoY) and attributable net profit (ANP) of Rmb1.46bn (+23.8% YoY). By segments, the tungsten and molybdenum/cathode materials/rare earth business posted net profit growth of 14%/95%/17% YoY, respectively. However, in 2022, the Company recorded an asset impairment of Rmb584mn, denting its bottom line.
　　Visible improvements in its tungsten and molybdenum businesses.
　　Tungsten price will likely rise in 2023 as the demand is picking up. Xiamen Tungsten’s self-produced tungsten may grow by 40% in the future upon the construction start of its Bobai (in Guangxi) tungsten mine. In 2022, the Company’s sales of fine tungsten wires for PV increased by 200% YoY. As the industry leader, it will likely continue to gain from the rapid development of the PV tungsten wire industry. With the robust expansion of its cemented carbide and cutting tools segments, the Company’s tungsten segment is likely to usher in earnings improvements. At present, molybdenum prices have reached its 17-year high. The Company is equipped with a complete molybdenum value chain, with a molybdenum production capacity of 11ktpa, and the rising molybdenum price is likely to bring in massive profit elasticity to the Company.
　　Outstanding rare earth and magnet material production capacity.
　　By the end of 2022, Xiamen Tungsten’s magnet material capacity expanded to 12ktpa, with an incremental capacity of 5ktpa under construction. Its capacity is rapidly approaching that of the industry leaders. The introduction of strategic investors and the employee stock ownership plan in Fujian Changting Jinlong Rare Earth (a subsidiary of Xiamen Tungsten) will likely accelerate the development of the Company’s rare earth business. Moreover, the Company is cooperating with Chifengjilong Gold Mining (Chifeng Gold) to explore rare earth resources in Laos. It also signed a cooperation agreement with Kunming government to build a downstream industry chain in this area. Taking the initiatives above, the Company is likely to enjoy the first-mover advantages in overseas rare earth resource exploration.
　　Accelerated expansion of the cathode materials segment.
　　Xiamen Tungsten’s high-voltage technology is leading the market. In 2022, with its rapid share increase in ternary material market, the Company further consolidates its leading position in lithium cobalt oxide area. The planned cathode material production capacity is around 400ktpa, and the capacity expansion is under acceleration. According to the Company’s 2022 preliminary results, we estimate that the Company’s earnings per tonne of cathode material increases to Rmb14,000 in 2022, doubling that in 2021. With the subsequent significant reduction in the investment intensity of the Company’s cathode material expansion, coupled with the financial expense cuts and scale effect brought about by the decline in gearing, the Company’s cathode material profitability is likely to continue to rise. The Company is deeply cooperated with upstream suppliers, which helps to ensure its supply chain and improve its cost advantage.
　　Potential risks: Fluctuated supply and prices of raw materials; less-than-expected growth in downstream demand; slower-than-expected capacity construction progress; defaulted receivables and inventory write-down, failure in strategic investor introduction of Jinlong Rare Earth, the subsidy company.
　　Investment recommendation: Considering the expectations of rapid growth in the Company’s fine PV tungsten wires and high-voltage cathode materials, and the price hikes of molybdenum and tungsten in 2023, we expect Xianmen Tungsten’s profit to grow faster than previously forecasted. Based on the Company’s preliminary results, we changed our 2022E/23E/24E EPS forecasts to Rmb1.03/1.56/1.84 (from previous forecasts of Rmb1.07/1.44/1.70). We select China Tungsten & Hightech (000657.SZ) and Jinduicheng Molybdenum (601958.SH) as the comparable companies for Xiamen Tungsten’s tungsten and molybdenum segment; Rising Nonferrous Metals (600259.SH) and JL Mag Rare-Earth (300748.SZ) for the rare earth and magnet materials segment, and Ronbay New Energy (688005.SH) and Easpring (300073.SZ) for the cathode materials segment. Considering the averaged PE multiples (25x 2023E PE) of the comparable companies, we assign 25x/20x/15x 2023E PE to Xiamen Tungsten’s tungsten and molybdenum/rare earth and magnet materials/cathode materials segment. Combined with the net profit forecast, we put the reasonable market cap at Rmb45.4bn, corresponding to the target price of Rmb32. We maintain the “BUY” rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。