The internal and external environment continued to improve, and the target price was raised to 12 yuan. Following the release of the “Precious Banking Industry: State-owned Assets Are Expected to Enter the Market, Build a Silver Empire” “Buy” rating report on January 1.2, 2019, the company's stock price has continued to rise and has now broken through the target price of 8.6 yuan given at the time. At this point, we believe that the company's investment logic is continuously strengthening in a positive direction: first, silver prices are in an upward channel, and the trend is becoming more clear. The weakening of US non-farm agricultural data in February, which exceeded expectations, is expected to drive a new round of rise in silver prices; second, with the implementation of bailout funds, the company's pledge risk has continued to be eliminated; third, since the beginning of the year, along with the loose liquidity environment, risk appetite in the A-share market has continued to rise. Looking ahead to the future market, the external and internal environment facing the company will continue to improve. Based on this, we will raise the company's target price to 12 yuan in the next 6 months to maintain the “buy” rating;
The company's funding issues are constantly being resolved. Since Q4 2018, the company has successively received financial support from Great Wall Assets, Hunan Caixin Financial Control, and the Industrial and Commercial Bank. Whether it is the pledge risk of the company's shareholders or the liquidity risk faced by the company's operations, it has been greatly mitigated. We believe that as a global leader in the silver recycling industry, the company has been recognized both within and outside the industry in terms of industry scale, technology, layout, and industrial chain extension. Therefore, although the company faces risks for a while, its own hematopoietic function of high-quality assets is recognized and pursued by funds from all parties in the market;
The price of silver is expected to start a new round of increase. Non-farm jobs in the US increased by 20,000 in February, far below market expectations of 180,000, the worst since September 2017. Jobs in the construction and retail industries declined, which may raise concerns about a sharp slowdown in economic activity. The latest data from the CME Federal Reserve's observation tool shows that the probability of the US interest rate hike in 2019 is 0, while the probability of interest rate cuts rose to 19.8%. It was 14% a week ago, and silver prices are expected to start a new round of rise;
Davies' double click is staged, and the company's performance is expected to exceed expectations. We believe that since the company's silver production and silver prices will continue to rise in 2019, it is expected that Davis Double Strike will be staged. In 2019, the company's silver production capacity was 2,000 tons, and the utilization rate is expected to reach 90%; in 2018, the average price of domestic silver was only 3,590 yuan/kg, the third lowest value in ten years, only higher than in 2009 and 2015. Currently, benefiting from the stagnation of interest rate hikes by the Federal Reserve, silver prices will continue to rise. The company's inventory value in 2018 Q3 is 3.5 billion. Assuming that 70% are silver-related raw materials, if the price of silver rises to 4,000 yuan/kg, net profit is expected to increase by 240 million yuan. If the price of silver rises to 5,000 yuan/kg, net profit increases by 700 million yuan, which can be described as extremely flexible.
Risk warning: Funding issues cannot be effectively solved; silver prices fall more than expected