Fumo's net profit increased 9.74% year-on-year in '22, maintaining the “increase in holdings” rating. According to the company's annual report, it achieved revenue of 50.047 billion yuan (YOY +20.94%) in '22; Guimu's net profit was 499 million yuan (YOY +9.74%). We updated the metal price assumption based on the metal price from March 22 to 23, and the production and financial data assumptions based on the annual report. The final forecast was that the EPS for 23-25 was 0.61/0.78/0.92 yuan (previous value of 0.61/0.68/-), and the average PE (2023E) value of comparable companies was 18.9X (consistent with Wind's expectations). Considering the company's role as an integrated platform for Jiangtong Precious Metals, the company was given 22 X PE in 23, corresponding target price of 13.51 yuan (previous value of 11.17 yuan). Maintain an “increase in holdings” rating.
Profit margins for major products have been squeezed, and gross margin has declined
In '22, the company produced 46.76 tons of gold (YOY +18.08%), silver produced 825.53 tons (YOY +9.02%), produced 202,200 tons of electrolytic copper (YOY +2.77%), and produced 1,5523 million tons of sulfuric acid (YOY -1.63%).
The company's gross profit margin in '22 was 3.76% (yoy-1.27pct), and the decline was mainly due to the squeezing of profit margins for major products. The gross margin of gold/silver/electrolytic copper/sulfuric acid products was 2.46%/7.84%/3.76%/38.19% (yoy-1.27/-0.17/-7.62pct); the expense ratio declined significantly during the period, where the financial expense ratio decreased by 0.64% (-0.22pct); therefore, the company's net interest rate decreased by 0.64% (-0.22pct); as a result, the company's net interest rate was 0.93% (-0.10pct). Compared to gross margin, the decline was small. Furthermore, the board's work plan mentions that the production tasks of 47.7 tons of gold, 791.83 tons of silver, and 1912 thousand tons of copper will be completed in 23.
The convertible bond project is progressing smoothly and aims to increase the metal recovery rate
The company currently has smelting capacity for 50 tons of gold, 1,000 tons of silver, 250,000 tons of electrolytic copper, 100,000 tons of lead, and 1.3 million tons of sulfuric acid. As of March 1, 2023, the company's convertible bond project has been accepted by the Shenzhen Stock Exchange. The fund-raising project “Comprehensive Recovery Technology Transformation Project for Valuable Elements in Gold-Containing Polymetallic Ore” will carry out comprehensive technical changes to the subsidiary Weihai Hengbang's existing production system, upgrading the outdated hydrometallurgical and gold extraction process by roasting cyanide hydrolyzed to a technologically advanced, energy-saving, environmentally friendly, and well-balanced gold smelting and extraction process, which will help improve the efficiency of the enterprise. After completion, the project will have the capacity to process 450,000 tons of gold-containing polymetallic ores per year. The estimated annual output is 11.49 tons of gold ingots, 210.17 tons of silver ingots, 84,700 tons of grade A copper, and 379,900 tons of sulfuric acid. The project construction cycle (engineering design - completion and acceptance) is 2 years.
A number of projects are also progressing steadily, and performance is expected to increase after completion
The Mou Ping Liaoshang Gold Mine (expansion, capacity expansion) mining project obtained a mining license in 20. It has now entered the infrastructure stage. After the expansion and capacity expansion, the mine construction scale will reach 900,000 tons/year; the key procedures for the complex gold concentrate multi-element comprehensive recycling project have also been approved; the company holds 20.87% of Wanguo Mining's shares, and its overseas mines were officially put into operation in '22; the second phase of the high-purity materials R&D and industrialization project was completed in November 22, and new material products of the high-purity arsenic, antimony, tellurium and other series of new material products will be fully industrialized in 23. A number of projects are progressing steadily and may have a positive impact on the company's performance after their gradual completion.
Risk warning: Environmental protection and other policies have led to a decline in production, and the tightening of monetary policy has led to a decline in commodity prices.