A global silver smelting giant, with upstream and downstream industrial chains running through. The actual controller of the company is Chairman Cao Yonggui. Currently, the shareholding ratio is 32.74%. The company is building a “whole industry chain+” development model with silver as the core. It has now formed an industrial chain system of mining (100,000 tons of ore/year) - smelting (100,000 tons of lead smelting) - comprehensive recycling (2000t/a high-purity silver, 50,000 tons of lead ice and copper slag resources, comprehensive utilization of 30,000 t/a secondary antimony resources) - processing (silver nitrate, high-purity silver powder, etc.), and is committed to becoming the world's leading comprehensive service provider for the silver industry. Currently, the main products are silver, lead and other comprehensive recycling products. In 2017, the company's silver and lead businesses accounted for 46% and 25% of gross profit, respectively, and produced about 1,300 tons of silver. According to our estimates and data from the World Silver Association, the company's silver production is expected to reach 1,600 tons and 1,900 tons in 2018 and 2019, ranking first in the world.
Strengthening the upstream mine layout of Baiyin is expected to acquire the silver mine, which currently has the largest domestic reserves, and increase its self-sufficiency rate. According to the announcement, the company began to lay out upstream silver mine resources in 2016, and successively acquired 100% of the shares in the Tibet Jinhe and Junlong mines. Currently, the gold and mining industry produces 100,000 tons of ore/year capacity. Junlong is actively applying for mining licenses. Since May 2018, the company has carried out major asset restructuring and plans to acquire 65% of Yubang Mining's shares. Yubang Mining currently owns the largest silver mine in the country, with silver resource reserves reaching 18,602 tons. After the acquisition is successful, it is expected to further increase the company's self-sufficiency rate of raw materials and form a more complete Baiyin. Industrial chain.
Midstream and downstream development continues to advance, and the gradual release of production capacity is expected to enhance the company's performance. According to the announcement, the company continues to develop advanced, low-cost smelting processes, put into operation a 50,000 ton lead ice and copper slag comprehensive utilization project in 2017, and is expected to launch a 2,000 t/a high-purity silver expansion project and a 30,000 t/a secondary antimony resource comprehensive utilization project in 2019. At the same time, in 2018, the company signed a cooperation framework agreement with Hunan Guoxin Company, which plans to promote 4,000 t/a high-purity silver nitrate, 2000t/a high-purity silver powder, and 1000t/a silver paste production line to strengthen the downstream layout, which is expected to further enhance the company's performance.
The risk of corporate debt is gradually declining, and valuations are expected to rise. In order to break through financing bottlenecks and reduce debt risk, first, the actual controller signed an intent agreement in September 18 to transfer 16.7% of the shares to Shanghai Jiye Company; second, the company and the actual controller signed a comprehensive service intent agreement with the Hunan branch of Great Wall Asset Management to provide a package of comprehensive financial services to restore financing and financing guarantee capabilities; third, they signed strategic cooperation framework agreements with asset management companies at the Hunan provincial and municipal levels to establish long-term cooperation. Valuations are expected to rise as debt risk gradually decreases.
Investment advice: Buy an -A investment rating, the target price for 6 months is 10.91 yuan. Currently, the global central bank competition for easing is gradually becoming a trend. We assume that the price of silver from 2018 to 2020 is 3.62, 4.16, and 4.78 yuan/gram, respectively. The company's 2018-2020 EPS is expected to be 0.14, 0.50, and 0.67 respectively. The increase in performance mainly comes from the continuous release of smelting capacity and income from inventory price increases. Considering that the company is expected to acquire large-scale mines at this point, silver's performance is also highly flexible, giving the company a dynamic price-earnings ratio of 22x in 2019 and a target price of 10.91 yuan for 6 months.
Risk warning: 1) Global monetary easing fell short of expectations, leading to a downside risk in global silver prices; 2) the company's promotion of the 2000t/a high-purity silver expansion project and the 30,000 t/a secondary antimony resource comprehensive utilization project in 2019 fell short of expectations; 3) the company implemented asset restructuring and acquisition of Yubang Mining fell short of expectations; 4) the company's majority shareholders' debt risk exceeded expectations.