Event description:

The company released its three-quarter report on the evening of October 23, 2019. The company achieved 5.75 billion yuan in revenue from January to September 2019, down 3.12 percent from the same period last year, and its net profit was 135 million yuan, an increase of 148 percent over the same period last year. In the third quarter, revenue reached 2.008 billion yuan, an increase of 1.38% over the same period last year, and the net profit of returning home was 67 million yuan, an increase of 54.4% over the same period last year.

Event comments:

The profits are gradually realized, and the performance flexibility of the pure smelting target is large. With the elimination of zinc deposits in winter last year, the boost of high zinc processing fees to the company's profits gradually reflected, quarter-on-quarter net profit increased significantly compared with the same period last year. As the target of pure smelting, the profit is low affected by zinc price, only in the scale of revenue, year-on-year, month-on-month basically flat. Compared with other companies in the same industry, about 60% of the company's raw materials come from imported zinc mines, which has a comparative advantage over domestic processing fees.

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 net profit from 2019 to 2021 is expected to be 1.93,2.83 and 316 million yuan respectively, an increase of 263.43%, 46.76% and 11.59% over the same period last year, and the corresponding PE is 24, 16 and 14 respectively. Maintain the recommended rating.

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