Incidents:

On April 27, 2023, the company released its report for the first quarter of 2023. In the first quarter of 2023, the company achieved operating income of 16.783 billion yuan, an increase of 14.13% over the previous year; achieved net profit of 320 million yuan, a decrease of 3.73% over the previous year; and achieved net profit of 308 million yuan after deduction, a decrease of 8.56% over the previous year.

Copper assets are injected into the company's operating profits

The company participated in the bankruptcy and restructuring of Dongying Fangyuan Nonferrous Metals in 2022, becoming the company's important copper smelting platform. In the first quarter of 2023, copper smelting enterprises were officially included in the company report. Affected by this, the 2023Q1 company achieved operating profit of 464 million yuan, an increase of 20.29% over the previous year; realized net profit of 375 million yuan, an increase of 11.56% over the previous year; and realized minority shareholders' equity of 550762 million yuan, an increase of 1363.34% over the previous year. The addition of the copper smelting platform has significantly increased the company's profitability and increased the company's operating profits. As the company's three main platforms of lead, zinc, and copper gradually mature, it is expected that the company's profitability will reach a new level in the future.

The main lead and zinc business is steady, moderate and positive

In the first quarter of 2023, the main lead and zinc business achieved a breakthrough in operating performance against the backdrop of declining processing fees and rising production costs. In 2023Q1, the Danxia smelter achieved total lead and zinc metal production exceeding 54,000 tons, an increase of 36% over the previous year, and achieved an output value of 1.18 billion yuan, an increase of 20% over the previous year. Net profit progressed sequentially. While expanding the copper field, the company continues to consolidate the advantages of traditional lead and zinc, and strives to build a world-class multi-metal international full-industry chain resource company.

Profit Forecasts, Valuations, and Ratings

We estimate that in 2023-25, the company's revenue will be 580.881/600.86/61,803 billion yuan respectively, and the 3-year CAGR will be 3.8%; the net profit of the mother will be 19.04/27.67/3.451 billion yuan respectively, and the 3-year CAGR will be 41.7%; and EPS will be 0.51/0.74/0.92 yuan respectively. The absolute valuation method measured the company's value of 7.3 yuan per share. Comparable to the company's average PE in 2023 was 12.1 times. Combining relative valuation and absolute valuation results, we gave the company a target price of 7.13 yuan to maintain the “buy” rating.

Risk warning: macroeconomic risk; risk of overseas mining operation; risk of financial consolidation.