The company's performance in 2019 is in line with expectations. On April 25, 2020, the company released its annual report in 2019 and quarterly report in 2020. The operating income in 2019 was 1.519 billion yuan, an increase of 32.69% over the same period last year. The net profit returned to the family was 125 million yuan, down 44.28% from the same period last year. The net profit after deducting non-return to the mother was 113 million yuan, down 44.85% from the same period last year. In 2019, the company achieved a gross profit of 369 million, of which lead-antimony (silver) concentrate and zinc concentrate accounted for 69.44% and 28.48%, respectively.

The company's performance fell in the first quarter of 2020 compared with the same period last year. Realized operating income of 702 million yuan, an increase of 875.51% over the same period last year; realized return net profit of 2.4111 million yuan, a decrease of 87.08% over the same period last year; deducted non-return net profit of 7.1026 million yuan, an increase of 94.68% over the same period last year; and basic earnings per share of 0.005 yuan, a decrease of 88% over the same period last year.

In 2019, the company's output of lead, zinc, antimony, silver and other products was stable, but the price of domestic lead, zinc, antimony and other metals fell sharply, and the company's performance fell back. In 2019, the average spot price of lead, zinc and antimony dropped significantly. The prices of lead, zinc and antimony were 16662 yuan / ton, 20229 yuan / ton and 42025 yuan / ton, respectively, compared with the same period last year. The average price of silver was 3953 yuan / kg, + 9.3% compared with the same period last year. The output of the company's products is stable in 2019. The output of ore is 720000 tons, completing 102.86% of the annual plan, producing 24100 tons of zinc concentrate, + 2.28% compared with the same period last year, mainly due to the increase in the grade of zinc raw ore; producing 21900 tons of lead-antimony (silver) concentrate, which is mainly due to the reduction of ore processing capacity, the parity of the company's main products in 2019, the gross profit margin of the company dropped by 19.37 Pct to 24.3%, and the company's performance fell.

Affected by the COVID-19 epidemic in the first quarter of 2020, the supply and demand of the non-ferrous metals industry chain was weak, the prices of lead, zinc and antimony dropped sharply, and the company's performance dropped significantly. In the first quarter of 2020, the prices of lead, zinc and antimony were 14503 yuan / ton, 16771 yuan / ton and 39827 yuan / ton respectively,-17.22%,-23.55% and-18.09% respectively compared with the same period last year; the average price of silver was 3978 yuan / kg, + 6.9% compared with the same period last year.

The company's key development projects continued in 2019. First, Keyue mining warrants processing made a breakthrough, mining warrants processing entered the final stage. The Keyue project (designed with a mineral processing capacity of 400,000 tons / year) is expected to be put into production in mid-2020. According to our estimates, if Keyueda produces, the company's production of lead, zinc, antimony and silver is expected to increase by 49%, 36%, 122% and 57%, respectively. Second, the construction of the tower aluminum gold industry project is in progress. The project was originally scheduled to be put into production by the end of 2019, but the construction period affected by the epidemic has been slightly delayed, and it is expected to start production in 2020. After reaching production, the project is expected to produce about 1.1 tons of gold rights and interests per year. Third, it is proposed to acquire a 40% stake in Guizhou Asia-Pacific Mining for 500 million yuan to participate in the development of the Nibao gold project. According to the company announcement, Nibao Gold Mine project gold control resources of 54 tons, grade 4.5g / ton, mining and selection of 1 million tons of ore / year, is expected to be officially put into production in 2022, gold output is expected to be 3404 tons / year, is expected to gram gold cost of 100,120yuan / g, Nibao Gold Mine reached production for the domestic larger single gold mine, with strong economic benefits, is expected to establish the company's position in the precious metals industry.

Since the end of 2017, the company has made continuous efforts to acquire gold assets at home and abroad, demonstrating the company's determination to shift its strategic focus to precious metal mines. After the acquisition of the Nibao project, the company plans to control a total of 113 tons of gold resources and more than 50 tons of rights and interests resources through the integration of Tajin and Essex Gray projects. According to our estimates, the company's gold equity output from 2020 to 2022 is 0.55 tons, 1.18 tons and 2.4 tons respectively. After the company's three major gold projects are fully reached in 2024, the gold output is expected to reach 6.6 tons, and the equity output is expected to reach about 3.2 tons. We believe that with the incubation and commissioning of the above gold projects, the company's main business metal varieties are gradually shifting from lead and zinc to gold and silver, and there is still the potential to further select and acquire precious metal assets at home and abroad in the future.

Investment advice: maintain the "buy-A" investment rating with a 6-month target price of 10 yuan per share. Considering the gradual commissioning of Keyue, Tajin and Nibao projects from 2020 to 2022, under the assumption that the prices of lead, zinc, antimony and gold are 15000 / ton, 16000 / ton, 40000 / ton and 380 yuan / g respectively, the estimated return net profit of the company is 290 million, 480 million and 650 million respectively. If the convertible debt-to-equity swap is not considered, the EPS is 0.56,0.92,1.23 yuan respectively. If we consider that the convertible bonds will increase their share capital by 63 million after the conversion in 2020, the diluted EPS will be 0.50,0.82,1.10 yuan respectively.

With the gradual production of the three major gold projects from 2020 to 2024, coupled with the fact that gold and silver prices have entered the upward channel, the company's precious metals performance and valuation flexibility will be greatly enhanced. We maintain a "buy-A" investment rating with a six-month target price of 10 yuan per share, equivalent to 18.0x dynamic price-to-earnings ratio in 2020.

Risk tips: 1) the progress of new mine production and asset acquisition has been delayed; 2) the price of lead, zinc, antimony, gold and silver is lower than expected.