Recommended logic: zinc smelting processing fees are currently in an upward cycle and are expected to remain high in the next two years. Zinc industry shares as the leading target of pure zinc smelting, the performance benefits from the flexibility of the increase in processing fees, and profits are expected to be greatly improved. In the raw material structure, imported ore accounts for a high proportion, the company is adjacent to the port, land and water transportation is convenient, a large proportion of the use of imported ore has obvious location advantages.
Zinc concentrate processing costs are rising, smelting leaders are expected to continue to benefit. At present, the increment of zinc ore mainly comes from abroad, and in recent years, the supply increment is greater than the demand increment, and the supply side of the mine is gradually relaxed. However, due to the stricter domestic environmental protection policy, there is a capacity bottleneck at the smelting end, the growth rate of refined zinc supply is insufficient, the smelter is in a favorable position, and processing fees tend to be raised. From the third quarter of 2018, the domestic and foreign zinc concentrate smelting processing fees began to rise significantly, and it is expected that the processing fees will remain high in the next two years. The gross profit of the smelter is mainly for processing fees, the company has a zinc production capacity of 300000 tons, zinc products account for about 80% of revenue, capacity utilization is close to 100%, performance is expected to be greatly improved.
Restructuring, reducing fees, improving efficiency and promoting development. The company went bankrupt in 2013 and production got back on track in 2014. In 2017, the actual controller changed from a state-owned legal person to a non-state-owned legal person. After the drastic reform, the company has stripped off a large amount of debt, greatly reduced financial expenses, continued to reduce the rate of management expenses, steadily improved production efficiency, and maintained steady growth in operating income and net profit as a whole.
A large proportion of imported mines are used, and the competitive advantage is highlighted. The company is adjacent to the port, convenient land and water transportation, low procurement cost, a large proportion of the use of imported mines has obvious location advantages. At the present stage, the increase of import processing fees is greater than that of domestic processing fees, and the company's performance flexibility is more significant. In addition, due to the TC valuation model for imported mines, the company's recovery rate is higher than the industry average and will receive additional performance dividends.
Profit forecast and investment advice. We estimate that the EPS of the company from 2018 to 2020 is 0.04,0.24 and 0.24 yuan respectively, and the corresponding PE is 80 times, 13 times and 13 times respectively. Coverage for the first time, giving a "overweight" rating.
Risk hint: environmental protection policy risk, zinc concentrate processing fees rise less than expected risk.