According to the 2008 annual report, the company's annual operating income was 6.129 billion yuan, down 34.7% from the same period last year; operating profit was-1.315 billion yuan, compared with-360 million yuan in the same period in 2007; net profit belonging to the owner of the parent company was-981 million yuan, compared with-288 million yuan in the same period in 2007; diluted EPS was-0.88 yuan. In addition, the company's quarterly report in 2009 showed that its operating income in the first quarter was 876 million yuan, down 53.8% from the same period last year; the net profit attributed to the owner of the parent company was-112 million yuan, compared with-55 million yuan in the same period in 2008; and the diluted EPS in the first quarter was-0.10 yuan. After review, the company will change from "zinc industry shares" to "* ST zinc industry".
The sharp fall in zinc prices led to huge losses in short-term performance. The company mainly engaged in lead and zinc smelting, sulfuric acid processing and other businesses, of which zinc business accounts for 80% of the income. The net profit for the whole year of 2008 and the first quarter of 2009 suffered a substantial loss, of which the gross profit margin fell to-40.2% in the fourth quarter of 2008, with a loss of 947 million per quarter. We believe that the huge loss in the company's operating performance is mainly due to the continuous decline in the price of zinc ingots, the main product of the company, throughout 2008, especially in October, when the price of zinc products plummeted and reached a new low in recent years, so that the sales price of the product was inverted with the cost of raw materials, and the price of sulfuric acid, the by-product of the company, fell sharply in the fourth quarter. In addition, the company's provision for asset impairment and other factors eventually led to a large amount of losses in the company's operating performance during the reporting period.
Internal factors are the root cause of long-term poor performance. The huge short-term performance loss caused by the sharp fall in zinc price is caused by external factors, and the fundamental reason for the company's poor long-term performance is the lack of internal factors such as its own mineral resources and backward technology and equipment: 1) at present, the company does not have its own mineral raw material supply base, and all zinc concentrates are purchased, resulting in the cost of raw materials higher than the average level of the same industry. 2) the technical equipment is backward, and the zinc production capacity of the company has reached 390000 tons, of which 200000 tons is zinc smelting by fire vertical pot, which is a relatively backward process, which has some disadvantages such as high energy consumption and expensive silicon carbide materials. 3) the cost control during the period is worrying. The comprehensive gross profit margin of the company for the whole year of 2008 and the first quarter of 2009 are-3.4% and-5.9% respectively, and the expense rate is as high as 11.7% and 13.8% respectively. The disadvantage of cost and expense control determines the company's long-term poor business performance.
Profit forecast. We expect the company to have a net profit of 23.74 million yuan belonging to the owner of the parent company in 2009, 0.02 yuan in 2009 and 0.01yuan in 2010, maintaining the company's "neutral" investment rating.
Risk tips: 1) the risk of continued weakness of lead and zinc prices; 2) macro environmental risk; 3) periodic fluctuation risk of non-ferrous industry; 4) the risk of company being delisted.
