China Tungsten And Hightech Materials Co.Ltd(000657) (000657)
Founded in 1993, the company is a high-tech manufacturing enterprise engaged in the research and development of cemented carbide, tungsten, molybdenum, tantalum, niobium and other non-ferrous metals and their deep-processing products and equipment. Relying on Minmetals Group, the company has a complete industrial chain competitive advantage. At present, it is the largest manufacturer of CNC blades in China and the largest producer of cemented carbide in the world. Zhuzhou Diamond dominated by CNC blades and Shenzhen Jinzhou dominated by precision micro drills are the main sources of profits of the company. From 2016 to 2020, the compound growth rates of the company’s revenue and net profit attributable to the parent company reached 17.54% and 103.05% respectively. In 2021q3, the company achieved revenue and net profit attributable to the parent company of 9.690 billion yuan and 398 million yuan respectively, with a year-on-year increase of 37.42% and 155.92% respectively.
Cemented carbide and tools have a wide range of applications, excellent performance and considerable industry scale
1) Tungsten: China is the largest tungsten storage country in the world, with abundant tungsten resources. From 2014 to 2020, China’s Tungsten output accounted for more than 80% of the world’s total tungsten output, and in 2020, China’s Tungsten output accounted for 82.14% of the world’s total tungsten output. Among China’s Tungsten exports, the proportion of cemented carbide increased from 15.89% in 2012 to 20.05% in 2018. The structure of export products continued to improve, and the competitiveness of China’s Tungsten Industry in the international market gradually improved.
2) Cemented carbide: China is the country with the largest output of cemented carbide. From 2010 to 2020, China’s Cemented Carbide output showed an overall growth trend, with a compound growth rate of 6.42%. In 2020, China’s Cemented Carbide output reached 41000 tons, a year-on-year increase of 12.33%, accounting for about 40% of the global output. Cemented carbide is mainly used in cutting tools (33%), geological and mining tools (25%), abrasives (8%), etc. in addition, cemented carbide has excellent performance, and its application proportion still has room for improvement in the future.
3) Cutting tools: in 2019, the total consumption of cutting tools reached the highest level in recent five years, accounting for 25.26%, Far below the level of developed countries (about 50%). With the increasing emphasis on efficiency by the users of CNC machine tools in China and the transformation and upgrading of machine tools, there is still much room for improvement in the scale of tool consumption in China. At present, the space for the Chinese market of cutting tools is about 40 billion yuan, nearly 40 billion US dollars in the world, and the market scale is huge. In addition, the localization rate of cutting tools is low, and the space for import substitution is huge.
Leading enterprises in the industry, with significant competitive advantage and leading core technology in China
1) Cemented carbide leading enterprises, tungsten industry chain layout is perfect
The tungsten mines under the management of the company have about 1.5 million tons of tungsten resources, accounting for 11% of the identified tungsten resources in China; The annual production capacity of tungsten smelting is 20000 tons, accounting for 10% of the national apt capacity; The total output of cemented carbide ranks first in China for many consecutive years, accounting for more than 25% of the Chinese market.
2) The products are in a leading position in the industry, and the integration of industry, University and research continues to inject energy into the company
CNC blades: the company’s output of CNC blades in 2018-2020 was 6707 / 6575 / 74.5 million pieces respectively, ranking first in China, and the average price was significantly higher than that of competitors. With the continuous expansion of the company’s production capacity, there is huge room for growth in the future.
Micro drill: at present, the company has 330 invention and utility model patents, has the world’s advanced micro drill automatic production and quality inspection equipment, and ranks sixth in the revenue of PCB special material enterprises, including the first in PCB tool manufacturers. In 2020, the company’s market share in the global PCB drill needle sales was about 18%, ranking second. The 0.01mm ultra-fine micro bit developed at the end of 2019 is the finest bit that can be manufactured in the world.
Others: the company has made great progress in hard surface materials, refractory metals, bar business, tungsten molybdenum wire and other business fields, and there is a huge imagination space for future development.
3) Overseas expansion has been fruitful, and China’s core technology is leading
The company has relatively perfect overseas marketing channels, and its overseas operating revenue has increased year by year, with a compound growth rate of 18.16% from 2016 to 2020. The company has R & D and technical advantages. As of 2021q3, the company has held 1356 valid patents, far higher than the industry average of 367 patents. The compound growth rate of R & D investment from 2018 to 2020 reached 44.82%.
4) The results of internal reform and restructuring were fruitful and the management efficiency was improved
In 2018, the company was included in the “double hundred action” enterprise of state-owned enterprise reform. By the end of 2020, the special reform had been successfully completed. The company’s per capita income continued to increase, from 510000 yuan in 2016 to 1.31 million yuan in 2020.
Investment suggestions: it is estimated that the revenue from 2021 to 2023 will be RMB 12.893 billion, RMB 14.842 billion and RMB 17.105 billion respectively, with a year-on-year growth rate of 30.0%, 15.1% and 15.2% respectively; The net profit attributable to the parent company was 567 million yuan, 676 million yuan and 830 million yuan respectively, with a year-on-year growth rate of 156.3%, 19.3% and 22.7% respectively. The corresponding EPS were 0.53 yuan, 0.63 yuan and 0.77 yuan respectively. Calculated by the closing price of 17.69 yuan on December 4, 2021, the corresponding PE were 34 times, 28 times and 23 times respectively. The company has rich product categories, leading competitiveness in the industry and significant integration advantages. At the same time, with the gradual release of the production capacity of the company’s fund-raising projects, the performance is expected to maintain high growth. For the first time, we rated the company as “overweight”.
Risk tips: the prosperity of downstream industries is declining, the import substitution process of NC blades is not as expected, and the industry competition is intensifying.
