Huayu Mining announced on the evening of August 23 that its revenue rose sharply in the first half of 2018, while its net profit fell slightly compared with the same period last year. The company achieved operating income of 576 million yuan in the first half of the year, an increase of 102% over the same period last year. First, trade income increased by 219 million, and there was no trade business in the same period last year; second, zinc and lead rose 9% and 13% in the first half of the year, while silver and antimony prices decreased by 10.2% and 17% respectively. The net profit of returning to the mother in the first half of the year was 117 million yuan, down slightly from the same period last year. In addition to the change in metal prices, although the ore handling capacity and metal volume increased slightly compared with the same period last year, due to the selection of some residual ores, the selected grade decreased and the comprehensive production cost increased by 49%.

Large private mining enterprises in Tibet have strong growth in resource reserves and output. The company is based in Tibet, mainly engaged in non-ferrous metal exploration, mining, mineral processing and trading business, the main products include zinc concentrate, lead-antimony concentrate (silver), copper concentrate and so on. First of all, the company is rich in resources and has great potential to increase reserves. At present, the company's main mines are Zaxikang and Lawu Mine, and have 4 detailed exploration projects, and 3 procedures for the transfer of exploration rights to mining rights are being processed. First, the company has a large number of mining rights, and is distributed in the Alps-Himalayan metallogenic belt, one of the largest metallogenic belts in the world, with superior ore-forming conditions. Second, the degree of exploration, development and utilization of mining geology in Tibet is relatively low, and the company still has great potential for resources in the deep part of its existing mines. Third, the company is carrying out related storage and capacity expansion business by strengthening exploration, equity participation, acquisition and other ways. Second, the output has a strong growth from 2018 to 2020. First, the output of Zaxikang and Lawu Mine remains stable, and second, according to the company announcement, the exploration and conversion procedures for the Keyue and Chagele projects are being processed. Once completed, they are expected to be gradually put into production from 2018 to 2020, with great potential for increasing production. The company's lead, zinc, antimony and silver output will be further increased.

With the successful acquisition of Tal Gold, the company is expected to become the world's largest antimony supplier and join forces with Tajik Aluminium to open a new chapter in the company's international development. In December 2017, the company acquired a 50 per cent stake in Tajik Alcoa for $90 million, which was successfully delivered in March 2018. First, resource reserves have significantly increased, with an increase of 24.95 metal tons and 132,300 metal tons of gold and antimony rights and interests. Second, the growth of output has been further enhanced. Tal Gold Kangqiaoqi Mine has a service life of 17 years and is scheduled to be put into production by the end of 2019. According to the company's announcement, it is expected to add 2.2 tons of gold concentrate and 16,000 tons of antimony concentrate annually after full production. At that time, the company's annual output of antimony ore is close to 15%. It is expected to become the world's largest antimony supplier and add new main business products, gold concentrate and gold ingots. Third, Tajik Aluminum is the largest wholly state-owned enterprise in Tajikistan, with rich experience in mine development, Huayu's experience in exploration, mining and production management in high-altitude mines, while high altitude and rich mineral resources. It is precisely the remarkable characteristics of Central Asia, which is at the core of "Belt and Road Initiative". We believe that with the Tajikistan aluminum industry as the starting point, the strong combination of the two sides will open a new chapter in the international development of the company.

Investment advice: "Buy-A" investment rating, 6-month target price of 14 yuan. Our estimates show that the company's net profit from 2018 to 2020 is 330 million, 370 million and 430 million respectively. Considering the exploration and production of the company's mines in Tibet in the past three years, and the expected commissioning of the Tarim aluminum industry by the end of 2019, the company has great potential for endogenous growth. Coupled with the broad prospects for the development of the company in Belt and Road Initiative area, the healthy financial structure of the company, and the strong control of the major shareholder Dao Heng Group, we give the "Buy-A" investment rating for the first time, with a 6-month target price of 14 yuan. Equivalent to the dynamic price-to-earnings ratio of 20x in 2019.

Risk hints: 1) the production progress of major mining projects is not as expected; 2) the price of lead, zinc, silver and antimony is low.