From January to September 2008, the company achieved operating income of 723 million yuan, down 21.52% from the same period last year; operating profit was-17 million yuan, compared with 92 million yuan in the same period last year; net profit attributed to the owner of the parent company was-20 million yuan, compared with 78 million yuan in the same period last year; diluted earnings per share was-0.11 yuan. The operating income in the third quarter was 264 million yuan, down 27.66% from the same period last year, and diluted earnings per share was-0.07 yuan.
The sharp drop in zinc prices reduced operating income by 21.52%. The company is mainly engaged in lead, zinc and other non-ferrous metal mining, zinc smelting, hydropower, etc., of which zinc business income accounts for more than 90%. The company's operating income declined significantly in the first three quarters, mainly due to a 41% year-on-year drop in zinc ingot prices during the reporting period (the average price of zinc in the spot market of the Yangtze River), as well as a sharp drop in sales and prices of ultra-fine zinc powder.
The amount of loss showed a trend of expanding month-on-month. During the reporting period, the company suffered a large loss, mainly due to the following reasons: 1) the decline in the sales price of zinc ingots and the increase in the price of raw and auxiliary materials led to a loss in the business (gross profit margin fell 1.7 percentage points to-0.1% in mid-2008 compared with the same period last year) 2) the decline in the sales price of ultra-fine zinc powder and the high inventory cost at the beginning of the period, resulting in serious losses in the business (the gross profit margin fell 44 percentage points year-on-year to-37% in mid-2008); 3) the increase in sales and financial expenses caused the expense rate to rise sharply by 3.53 percentage points to 8.38% during the period, and the cost control was worrying. At the same time, due to the 16.83% month-on-month decline in zinc prices in the third quarter and the increase in zinc ingot sales, the company's gross profit in the third quarter was-0.4% (5.5% in mid-2008), the net profit attributed to the owner of the parent company was-13.27 million yuan, and the loss showed a trend of month-on-month expansion. It is expected that there will still be large losses in the fourth quarter.
Lead concentrate and cadmium ingots are hardly "life-saving straws". Due to the increase in the prices of lead concentrate and cadmium ingots, the gross profit margin of the two operations reached more than 60% during the reporting period, and the combined share of income rose to more than 5%. The gross profit margin of hydropower projects is about 50%, but income accounts for less than 1%. There are few bright spots in the company, and it is difficult to make up for the losses in the zinc business.
The fund-raising project failed to be implemented as scheduled. The company originally planned to introduce the oxygen pressure leaching wet zinc smelting technical transformation project with part of the funds raised in 2007, so as to make the high-speed iron sphalerite treatment process and zinc smelting technology reach the international leading level, but the final introduction agreement has not been signed with the Canadian company Delettek, which will affect the company's profitability to a certain extent.
Profit forecast. We expect the company to have a net profit loss of 33.46 million yuan attributable to the owner of the parent company in 2008, downgrade EPS to-0.18 yuan in 2008 and-0.03 yuan in 2009, and maintain the company's "neutral" investment rating.
