Event
On August 26, the company released its 2016 semi-annual report. During the reporting period, the company achieved operating income of 1.48416 billion yuan, down-33.85% from the same period last year. The net profit belonging to shareholders of listed companies was 25.27 million yuan, compared with a loss of-570000 yuan in the same period last year, reversing losses compared with the same period last year.
Comments:
The return on investment is still considerable and the sharp reduction in asset impairment is the main reason for the turnaround. Sichuan Trust, in which the company holds a 22.6% stake, achieved a net profit of 532.85 million yuan attributable to the parent company in the first half of 2016, generating an investment income of 118.08 million yuan, which was the main source of profit. The main reason for the turnround was the rebound in zinc product prices in the current period and the reversal of the provision for inventory price decline at the beginning of the period. The asset impairment during the reporting period was-18.89 million yuan, compared with 47.79 million yuan in the same period last year.
The zinc ore resources are of high quality and the smelting competitiveness is low. The company holds a 60% stake in Yunnan Jinding Zinc Industry and has the Yunnan Lanping lead-Zinc Mine with the largest reserves in Asia. The recoverable metal amount of zinc / lead is 5.4176 million tons / 1.2749 million tons respectively. The average grade of zinc / lead is 8% and 1%, respectively. It is the company's most profitable and high-quality asset. The output of 2015A zinc concentrate / lead concentrate is 101500 tons / 14200 tons respectively. At the same time, the company has a supporting smelting capacity of 220,000 tons / year of electrolytic zinc and 100,000 tons / year of zinc. The refined zinc output of 2015A/2016H is 130900 tons / 53000 tons respectively (half of Jinding and half of Sichuan Hongda). As processing fees continue to decline, the profitability of the asset is still poor. The price of chemical monoammonium phosphate continues to fall and depressed, and the profit situation is poor.
Zinc prices remain high in the second half of the year and have great potential for performance growth. We predict that the average price of zinc will remain above 17000 yuan / ton in the second half of the year, and the average price of zinc for the whole year is 15680 yuan / ton, which is higher than that of the same period last year. The output of zinc concentrate will exceed 100000 tons and the output of refined zinc will be 110000 tons. Due to the sharp rise in zinc prices, asset impairment will continue to turn back; there is no futures hedging, enjoy the rising price dividend. The profit of Sichuan Trust can be maintained at the level of 1.1 billion yuan, and the investment income is still considerable.
Profit forecast and valuation: target price 6.9 yuan per share, investment rating "buy"
Based on the above assumptions, we predict that the operating income of the company's 2016A/2017A/2018A is 4.033 billion yuan / 4.436 billion yuan / 4.88 billion yuan respectively, the net profit belonging to the owner of the parent company is 122 million yuan / 76 million yuan / 94 million yuan, and the corresponding EPS is 0.06 yuan / 76 million yuan / 0.10 yuan respectively. The PE that can be given to the company's 2016A/2017A/2018A is 115x / 87x / 70x respectively. Corresponding to the valuation level of 115x PE in 2016, the target price is 6.9yuan per share, with an investment rating of "buy".
Risk hint
The price of zinc concentrate is lower than expected, the performance of Sichuan trust is lower than expected, the output is not as expected, and the government subsidy is not as expected.
