Event: the company recently released its annual report for 2018.
Main points of investment:
Revenue continues to grow, and rising costs lead to a decline in net profit. In 2018, the company achieved a total operating income of 19.334 billion yuan, an increase of 10.80% over the same period last year; the net profit attributable to shareholders of listed companies was 132 million yuan, down 54.82% from the same period last year; the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 124 million yuan, down 53.39% from the same period last year; basic earnings per share was 0.12 yuan, with cash distribution of 0.38 yuan (including tax) for every 10 shares. The main reasons for the decline in net profit compared with the same period last year are:
(1) the national environmental protection supervision has been strengthened, the raw material market is tight, the deduction of processing fees has decreased, the company's procurement cost has increased, and the company's profit has decreased; (2) the US dollar index has continued to rise, the RMB has depreciated by a large extent, and the company's foreign exchange losses have increased; (3) the domestic capital has been tight, the cost of capital has increased, the company's interest expenses have increased, and the total financial expenses have increased by 112.82% compared with the same period last year.
The leading position of lead smelting is stable, and the recovery efficiency of by-products is improved. In 2018, the company produced 422500 tons of electrolytic lead and lead alloys, an increase of 1.77 percent over the same period last year, 125700 tons of cathode copper, an increase of 14.23 percent over the same period last year, an increase of 8979.89 kilograms of gold, an increase of 21.61 percent over the same period last year, and 1037.24 tons of silver, an increase of 8.22 percent over the same period last year. The production capacity of the company's main products is: lead 400000 tons, gold 7000 kilograms, silver 1000 tons, sulfuric acid 560000 tons, cathode copper 110000 tons. The company has actively developed circular economy and has invested nearly 1 billion yuan to recover more than 10 valuable metals such as gold, silver, antimony, bismuth, copper, cadmium and indium from lead-zinc ore. The company has invested a total of 1 billion yuan to develop the recycled lead industry. At present, three waste lead-acid battery pretreatment production lines have been built, with an annual recovery and treatment of 540000 tons of waste lead-acid batteries, an annual output of 200000 tons of recycled lead and 16000 tons of plastic.
Affected by the production process, some fund-raising projects have been postponed. In 2016, the company issued 204490306 RMB common shares to eight specific investors in the form of non-public offerings, raising a total of 1.534 billion yuan. In addition to repaying 460 million yuan in bank loans, other funds will invest in the construction of waste lead-acid battery recycling network system projects, waste lead-acid battery plastic recycling projects and zinc-copper slag resources comprehensive utilization projects. Among them, the comprehensive utilization project of zinc-containing copper slag resources was originally scheduled to reach the serviceable state in January 2018, but due to the complex composition of copper soot materials produced by the company, the conventional copper soot treatment production process can not fully meet the production needs. The company needs to continue to carry out investigation, demonstration and experimental research in order to gradually improve and determine the production process, and it is expected to complete the drawing design by the end of June 2019 and put into production in April 2020.
Standardize the lead-acid battery recycling policy to benefit the leading enterprises. The Action Plan for Prevention and Control of waste lead Battery pollution issued in January 2019 requires the National Development and Reform Commission and the Ministry of Ecological Environment to formulate and issue measures for the management of recycling of lead-acid batteries in 2019 to implement extended producer responsibilities. we should give full play to the leading role of key enterprises in lead-acid battery production and recycled lead, and encourage recycling enterprises to establish a reverse recycling system based on the marketing network of manufacturers. At present, the proportion of recycled lead in Europe and the United States is more than 80%, while that in China is only 45%. The policy will be more inclined to increase the proportion of recycled lead. The new policy is expected to change the situation of "small, scattered and chaotic" in the industry, and the degree of industrial concentration will be greatly increased. The construction of the company's waste lead-acid battery recycling network system is being promoted in an orderly manner. In 2018, seven recycling sites established in Zhengzhou, Luoyang, Zhoukou, Zhumadian, Xi'an, Yuncheng and Linfen have been approved by EIA. Hunan Sheng Heng, Luoyang and Zhoukou branches have passed EIA acceptance and trial operation. The construction of seven recycling sites in Sichuan is being firmly promoted.
Profit valuation and investment advice: it is estimated that the fully diluted EPS of the company in 2019-2021 is 0.14,0.19,0.22 yuan respectively. Calculated according to the closing price of 4.97 yuan on April 24, the corresponding PE is 35.9,26.8 and 22.6 times, respectively. The valuation is at a reasonable level in the lead and zinc smelting industry, and the company is given an investment rating of "increasing holdings" for the first time.
Risk tips: (1) the price of lead, silver and other metals fell, and (2) the progress of the fund-raising project was not as expected.