According to the report for the third quarter of 2020, the operating income, return net profit and non-return net profit in the first three quarters were 283,2.2 and 420 million yuan respectively, up 37 per cent, down 14 per cent and 54 per cent respectively over the same period last year.
Hedging losses are a drag on earnings: operating income and net profit deducted from non-return increased by 37% and 54% respectively in the first three quarters compared with the same period last year, mainly due to an increase in sales of major products. The average price of gold rose 27% in the first three quarters compared with the same period last year.
Non-recurrent profit and loss in the first three quarters-200 million yuan, of which hedging business-250 million yuan. In addition, the asset impairment in the first quarter was 190 million yuan, mainly due to the provision for inventory decline in the first quarter, and 2.75 million yuan in the same period last year.
With the start of the expansion of Liaoshang Gold Mine, the self-produced ore output will be greatly increased: the total investment is 1.23 billion yuan, the construction scale is 900000 tons / year, and the service life is 20 years. The company estimates that after the completion of the project, the annual profit will increase by 240 million yuan, which is about 78% of the company's net profit in 2019. Within the scope of Liaoshang mining rights, there are a total of 20,0360,000 tons of geological resources, 75.5 tons of gold and metal, with an average grade of 3.71 grams per ton. The amount of industrial ore is 17,0405 million tons, the amount of gold and metal is 69.9 tons, and the average grade is 4.02 grams / ton. The annual output of mineral gold in Liaoshang Gold Mine is about 3-4 tons. After reaching production, the company's mineral gold output will increase from the current 1.5-2 tons to 5 tons.
The blessing of Jiangxi Copper is an important point: in June last year, Jiang Copper acquired 29.99% of the company's equity, becoming the largest shareholder. Jiangxi Copper subscription Company issued 237614400 shares in a private offering, raising its shares to 44.48 per cent.
After raising funds in place, the company's debt ratio is expected to effectively decline, at the same time, Jiang Copper's global vision will also help broaden the company's gold mineral resources acquisition channels.
According to Jiangxi Copper's semi-annual report 2020, as of December 31, 2019, Jiangxi Copper's 100% ownership of gold has identified reserves of about 281.5 tons of gold and 8347.7 tons of silver; resources controlled by Jiangxi Copper and other companies, the reserves of gold metal resources calculated by Jiangxi Copper's equity are about 52 tons. We expect that there is a higher possibility of injection of its own unassociated gold resources.
Maintain the "highly recommended-A" investment rating. It is estimated that the net profit from 2020 to 2022 will be 3.8 pounds 6.6 yuan / 720 million yuan respectively, corresponding to the price-to-earnings ratio 43X/25X/23X. Jiangxi Copper's positioning of the company as a gold plate platform, we judge that the possibility of future resource injection and mergers and acquisitions is high. Considering that the price-to-earnings ratio of the company is lower than that of its gold counterparts and has strong growth in the future, it is strongly recommended.
Risk tips: the construction and production schedule of the project under construction is less than expected, the price of the main product falls sharply, the risk of production safety, the risk of failure of non-public offering, and so on.