19H1 performance is in line with expectations, maintaining "overweight" rating
On July 10, 2019, Jinling Mining (hereinafter referred to as "the company") issued a semi-annual performance forecast for 2019. It is expected that 2019H1 will achieve a net profit of 7400-95 million yuan for shareholders of listed companies, an increase of 81% Rue 133% over the same period last year. In the forward-looking report of the iron and steel industry released on July 10, we forecast that the company will make a profit of 75.22 million yuan in the first half of the year, and the company's performance is in line with our expectations. Based on the current situation of low ore inventory in ports and steel mills, we think that the average price of Q3 iron ore is still higher than that of last year; Q4, affected by the resumption of production of vale mines, the average price of iron ore may be adjusted back, and the average price of iron ore may increase by 226yuan / ton over last year. Due to the increase in mineral prices more than we had expected, we raised the company's EPS to 0.32, 0.40, 0.47 yuan (the previous value, 0.29, 0.37, 0.45), with a target price of 6.95-7.16, maintaining the "overweight" rating.
Mineral prices may continue to rise, and price correction is expected in the fourth quarter.
The average prices of 2019Q1 and Q2 iron ore were 622,743 yuan per ton, up 14% and 55% respectively from the same period last year, and 9% and 19% respectively from the previous month. Due to the impact of the mining accident at the beginning of the year, Brazilian iron ore shipments were the same and more downward than the previous year, and the pig iron output of superimposed 2019Q1/Q2 (April-May) changed by-0.5% and 10.7%, up 9.8% and 10.0% from the same period last year, with more demand rising. In addition, the port iron ore inventory has been declining, falling to 110 million tons in June, the lowest level in nearly two years, while the dredging volume remains high, and the imported ore inventory of steel mills is still lower than in the same period in previous years, which is still conducive to the rise in ore prices as a whole. Consider the pace of resuming production of the four major mines, mineral prices in the fourth quarter may be under pressure. We expect the ore prices of Q3 and Q4 to change by 100 yuan / ton and-50 yuan / ton respectively.
Administrative factors suppress mineral prices and may raise the price center in the future.
Since early July 2019, CISA expressed the hope that relevant ministries and regulators would further strengthen investigation and nuclear supervision, standardize market behavior, maintain normal competition order in the iron ore market, and promote reasonable compliance of iron ore prices. We believe that the long-term effective means to restrain the mineral price is to expand the supply of low-cost iron ore, administrative intervention in the short term or to suppress the mineral price, but it also brings uncertainty to the mine, reduces the willingness of the mine to expand capital expenditure, or raises the price center in the future.
We maintain the point of view of the medium-and long-term prosperity of iron ore in 2-3 years.
In our first coverage report and the iron ore depth report "supply inflection point approaching, bargaining power rising" released at the beginning of the year, we have proposed that the cycle of capital expenditure of the four major mines indicates that the medium-and long-term supply inflection point of iron ore in 2019 is coming, and the price center is moving up. Iron ore as the best supply and demand pattern in the iron and steel industry chain, it is easy to obtain the tilt of profit distribution in the industrial chain; in the case of non-cliff drop in demand, rebar prices will not decline significantly, ensuring iron ore bargaining space to a certain extent. We update our forecast and expect ore prices to change by 226-50-50 yuan / ton respectively from 2019 to 2021 (the previous value is 150-50-50 yuan / ton).
Benefit from the increase in iron ore prices and maintain the "overweight" rating.
The company focuses on iron concentrate powder and pellet production, and is expected to fully benefit from the high elasticity of performance brought about by rising prices; the decline in mineral reserves may force the company to open up new mineral sources. Due to the increase in mineral prices exceeding our previous expectations, we raised the company's profit forecast. It is estimated that the company's BVPS for 2019-21 will be 4.34 BVPS 4.74 pounds 5.21 yuan (the previous value 4.31 pounds 4.68 pounds 5.13 yuan), PB 1.45 pounds 1.33 pounds 1.21 times, comparable company average PB (2019E) 2.08 times, considering that the company's iron ore reserves are far less than those of the four major mines, we will give the company 1.60-1.65 times PB in 2019. The target price is 6.95-7.16 yuan, maintaining the "overweight" rating.
Risk tips: the resumption of production exceeded expectations or policy impact, iron ore prices rose less than expected; steel demand fell sharply; the company's product production and sales fell or costs, transportation costs rose, resulting in a decline in performance.