Main points of investment
Zhaojin Mining announced its results in 2021: annual revenue of 6.86 billion yuan,-10.3% compared with the same period last year; gross profit of 2.69 billion yuan, down 25.5% from the same period last year; and net profit of 33.697 million yuan, down 96.8% from the same period last year. No dividend is planned for this year.
21Q4 production capacity has been fully restored, production and operation is on the right track. The large-scale inspection of production safety in Shandong Province and the clean-up and rectification of non-coal mines in Yantai City have caused serious damage to 21Q1-Q3 production. The company's annual mineral gold output was 12.6 tons, down 37.2 percent from the same period last year, and 11.0 tons of smelting and processing gold, down about 28.9 percent from the same period last year. Although it fully returned to licensed capacity at the end of the third quarter, mineral gold production in the second half of the year still decreased by 40.1% to 7.3 tons compared with the same period last year, but increased by 36.7% compared with the same period last year.
The decline in production has led to a sharp increase in the comprehensive cost of Kejin, and it is expected that the cost in the fourth quarter is still higher than that in previous years. The sharp decline in production has led to an increase in unit depreciation and amortization. We expect a substantial increase in comprehensive production costs in 2021. The company's annual gross profit margin fell 8.0ppt to 39.2% year on year, still better in the second half of the year than in the first half, H2 gross profit margin of 44.8%, month-on-month increase of 11.0ppt. Looking at the fourth quarter alone, due to the company's strict compliance with the license capacity to mine ore, we expect that the cost in the fourth quarter alone will still be higher than in previous years. With the stricter supervision of the industry, higher production costs will be the norm.
For the whole year, the average gold price on domestic exchanges was 373.9 yuan / g, down 3.2% from the same period last year. Sales and financial expenses fell slightly. Administrative expenses and other expenses are maintained at a high level. The share of profit and loss of minority shareholders increased significantly to 82.4%.
Our point of view: the company will enter the construction year of the sea area project in 2022, and the output of the company will double in the next 5 years with high certainty. The gold mine in the sea area has successfully obtained the mining certificate, completed the approval of environmental assessment, and the design of safety facilities has also been reviewed and approved. the mine has the advantages of "large reserves and low cost". Large-scale infrastructure work began in 2022, mineral processing and production were carried out in turn. The output is expected to reach 16 tons per year in 2025, which is double the company's gold production. Under the assumption that the gold price is stable, the company's net profit from 2022 to 2026 is CAGR=29.0%.
Referring to the previous Fed "contraction table" or "interest rate hike" law, gold often rebounded after the boots landed, with a rebound of 15-30%, lasting for 1 quarter-more than half a year. On March 16, local time, the Federal Reserve raised interest rates 25bp as scheduled, and showed a more hawkish attitude. at present, the market expects to raise interest rates more than four times in 2022, the market is fully expected to tighten, and the pressure to raise interest rates in the second half of the year is expected to gradually decline (high before CPI and then low).
At present, the company is still in a state of undervaluation, and the enterprise value / resource of EV is only 1 / 3 of that of its peers. The rebound in gold price and the release of gold deposits in the sea area will be the catalyst for valuation repair.
Extreme assumption, gold bear, Zhaojin still has absolute income. If the price of gold falls by another 15 per cent (assuming a complete bear market), after the sea is put into production, Zhaojin will make a profit of about 1.1 billion yuan in 2026, valued at 20x, and the company will be valued at HK $30 billion and the equity value discounted with DCF (discount rate 3 per cent) will also exceed HK $30 billion.
The company guided that the output of mineral gold in 2022 increased by 16.6% to 14.7 tons compared with the same period last year (compared with 2020-26.7%). We expect the company's annual return net profit in 22-23-24 to be 8.6 billion yuan, or + 2458.9%, 25.9%, 16.4%, respectively, year on year. The target price will remain at HK $12.50 and the "buy" rating will be maintained.
Risk tips: gold price fluctuation risk, mine production below expectations, safety accidents and environmental protection risks