Summary of the report:
Profitability has improved significantly compared with the previous month.
The company's 2019Q1 is affected by Dongchu Zinc Mine, and its profit is lagging behind. After the climate warmed up in the second quarter, the profit margin of zinc products increased significantly after benefiting from high processing fees. We believe that under the background that zinc prices and zinc processing fees remain high in the future, the company's profitability will be greatly improved and profits will increase significantly.
Pure smelting enterprises benefiting from rising processing fees
The company buys all the raw materials for zinc smelting and only earns processing fees, which is the most flexible under the background of rising processing fees. About 60% of the company's raw materials come from imported zinc mines, which has a comparative advantage over domestic processing fees. In the next three years, overseas zinc mines will concentrate on resuming and expanding production, while the expansion of smelting capacity is mainly concentrated in China, so the company will fully benefit from the increase in processing fees for imported zinc mines.
The duration of high processing fee is expected to exceed expectations.
At present, zinc stocks are at an all-time low, domestic monetary policy is expected to be loose, stimulate downstream demand, metal prices or rebound. In the case of high zinc processing costs, the operating rate of smelting enterprises gradually increases, and the reuse of idle capacity or the use of high-intensity machines will increase the probability of equipment failure and increase the frequency of maintenance, which will affect the release of zinc ingot production at the supply end and support the zinc price. Under the high pressure of environmental protection, the concentration of the industry is enhanced, and the bargaining power of large-scale smelting enterprises is enhanced. From the perspective of capital level and construction cycle, there is a time gap in the launch of new capacity.
Investment rating and valuation
According to the profit forecast, the company's revenue in the next three years is expected to be 73.05,75 and 7.52 billion yuan respectively, and the return net profit is 1.84,4.27,475 million yuan respectively, and the corresponding PE is 24.75,10.71,9.62 respectively.
Risk Tips:
Overseas zinc mines release less than expected risk; zinc smelting capacity exceeds expected risk; downstream demand is lower than expected risk; weather factor company project shutdown risk
