Net profit increased 10 times behind the hidden dangers of Jinchuan technology raw material supply

The company's net profit doubled in 2017 will accelerate the IPO process of Jinchuan Technology.

Jinchuan Technology (837205) released its 2017 annual report. During the reporting period, the company achieved revenue of 4.217 billion Yuan, a year-on-year increase of 100.39%; net profit of 933 million Yuan, an increase of 1095.52% over the same period of the previous year.

Jinchuan Technology's main business is the development, production and sales of cobalt metal smelting and cobalt new material products. The products include tricobalt tetroxide, cobalt metal, nickel cobalt manganese ternary precursor.

The report shows that cobalt products are the main growth driver of Jinchuan Technology, and the revenue of the ternary precursors is relatively low. Benefiting from the soaring price of cobalt, the continuous growth of the new energy vehicle market has stimulated the demand for upstream cobalt raw materials. In 2017, Jinchuan Technology's production and sales of cobalt products were booming, thus achieving explosive growth in revenue.

It is worth noting that despite the surge in production and sales of Jinchuan Technology Cobalt products, it also faces many risks. The fact that all raw materials depend on outsourcing and fluctuations in cobalt metal prices is a major obstacle to their continued growth in the future.

Jinchuan Technology said that due to cobalt as an international non-ferrous metal trading product, there is an open price system in the international market. The purchase price of cobalt metal raw materials and the sales price of cobalt products in the market and the fluctuation of MB cobalt price are generally consistent. Most of the company's cobalt raw materials are sourced from the Congo (Golden) region, and it takes 3-6 months from mining to smelting to product storage, thus bearing the risk of a sharp decline in MB cobalt prices.

At the same time, the company's cobalt raw materials include crude cobalt salt and nickel-cobalt slag, all of which are purchased externally through the market. The crude cobalt salt is mainly derived from Congo (gold) cobalt-containing metal mineral resources developers, accounting for about 70% of the company's total purchase of cobalt metal raw materials.

The Congolese government has issued various policies since 2017 to strengthen its cobalt mining and export management, which has led to an increase in the price and supply of international cobalt raw materials, which will inevitably result in cobalt companies that rely on cobalt raw materials imported from the DRC tremendous influence.

In fact, because Jinchuan Technology does not have cobalt resources, all raw materials rely on market outsourcing, resulting in a far lower gross profit margin than other cobalt products.

Annual report showed that although science and technology in Jinchuan product gross margin rose from 9.11% in 2016 to 25.99% in 2017, but still far below the 39.9% of Huayou cobalt industry and cold sharp cobalt industry 51.32%, while the latter are in overseas with cobalt resources, realize the company's products through part of the raw materials are gross margin and profit ability promotion, so as to consolidate its competitive advantage in cobalt industry.

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