The company announced the 2017 interim results report. During the reporting period, the company achieved revenue of 638 million yuan, an increase of 30.67% over the previous year; the net profit returned to the mother was 241 million yuan, an increase of 293.92% over the previous year, and EPS was 0.2123 yuan/share, in line with market expectations.
Lead, zinc and copper ore output is stable, and the completion of business plans throughout the year is good. During the reporting period, the company mined 980,900 tons of lead-zinc ore and 76,400 tons of copper ore; processed 1,055,600 tons of lead-zinc ore and 107,700 tons of copper ore. During the reporting period, the company's lead concentrate sales reached 5,805.55 tons and 7,896.77 tons respectively, down 11.63% and 20.39 respectively; zinc concentrate sales reached 33,659.21 and 34826.25 respectively, down 13.20% and 10.14% respectively; copper concentrate sales were 884.88 tons and 888.17 tons respectively, up 3.19% and 5.23% respectively over the previous year. Lead concentrates, zinc concentrates, and copper concentrates completed 47.59%, 50.84%, and 44.24% of the annual business plan respectively. Considering that the first half of the year had fewer working days than the second half, the completion of the business plan was guaranteed.
The company's performance in the first half of the year was mainly due to a recovery in commodity prices. Since the end of 2015, as the global economy continues to pick up and the relationship between supply and demand for bulk metals has improved, the prices of metals such as lead, zinc, and copper have picked up to varying degrees. There is a clear supply gap on the lead-zinc metal raw material side. Fundamental support is strong. The price focus has clearly risen in the face of a recovery in demand. The average price of SHFE zinc is 22,234.45 yuan/ton, a sharp increase of 54.45% over the previous year, an increase of 16.79% over the previous month, and the average price of SHFE lead is 17,465.55 yuan/ton, 32.36% year on year.
The rise in copper prices is also evident.
There is still room for zinc prices to rise. In 2016, we released the “Zinc Supply and Demand Analysis” in-depth report, putting forward the view that zinc prices will continue to rise for three years. In recent years, as investment from large overseas lead and zinc mining companies declined, downstream demand has been rising steadily, and supply and demand continued to be tight in 2017. The newly built mines will only be released centrally after 2018, and the rise in production capacity will still take about a year. The new production capacity will not be reflected in the zinc supply and demand balance until 2019. Recently, the price of zinc has continued to break through, breaking above 26,000 yuan/ton. This validates our opinion. We believe that the price increase trend will continue.
The undervalued flexible faucet for zinc prices. Judging from the amount of resources, we estimate that the company's corresponding market value per ton of zinc resources is only over 6,000 yuan, which is only higher than that of CICC Lingnan's peers; our estimate of the company's zinc price elasticity is second only to CICC Lingnan and Chihong Zinc-Germanium, which may greatly benefit from rising lead and zinc prices.
Profit forecast and investment rating: We forecast that the 2017-2019 EPS was 0.47 yuan/share, 0.66 yuan/share, and 0.74 yuan/share, respectively, corresponding to 2017-2019 PE 23 times, 16 times, and 15 times respectively. The company's zinc price performance is highly elastic and the valuation is low. Considering that zinc prices still have room to rise, the company's performance will benefit greatly, giving a “increase in holdings” rating.
Risk warning: the price of lead and zinc metals has fallen, and the production of the company's main products falls short of expectations