occurrences

The company announced its semi-annual report on August 29. 1H23 achieved revenue of 37.208 billion yuan, +3.88% year-on-year; net profit of 540 million yuan, or -36.34% of the same period; net profit of 503 million yuan after deducting non-return net profit of 503 million yuan, or -38.76% year-on-year. In 2023, we achieved revenue of 20.436 billion yuan, +21.70% month-on-month; net profit of 220 million yuan, or -31.21% month-on-month; net profit after deducting non-attributable net profit of 195 million yuan, or -36.85% month-on-month.

reviews

Product prices fell month-on-month, and steel smelter profits were considerable. In 2023, the average spot price of non-ferrous zinc in the Yangtze River was -1027% to 209,000 yuan/ton, the average spot price of non-ferrous lead in the Yangtze River was -0.35% to 15,500 yuan/ton, and the average spot price of non-ferrous copper in the Yangtze River was -1.61% to 67,500 yuan/ton. (1) 1H23 concentrate produced 134,400 tons of lead-zinc metal, -1.54% year-on-year, while concentrate products achieved revenue of 1,196 billion yuan, -28.02% year-on-year, and a gross profit margin of 19.43%, a year-on-year decrease of 19.94 percentage points. (2) The output of 1H23 lead-zinc smelting products was 2152,000 tons, +27.62% year-on-year, mainly due to a significant increase in lead ingot production after the zinc slag refining project of the Danxia Smelter was put into operation. The revenue of lead-zinc smelting products was 3,505 billion yuan, -2.12% year-on-year, and the gross profit margin was 19.26%, a year-on-year decrease of 2.62 percentage points. (3) The company also listed with CICC Copper in February. 1H23 produced 192,200 tons of cathode copper, 800 tons of crude steel, and revenue of copper smelting products was 13.224 billion yuan, with a gross profit margin of 3.99%. CICC Copper has a net profit of 245 million yuan in 1H23, and is expected to achieve a net profit of about 500 million yuan in 23 years. (4) The company reduced the scale of its trade business after merging the steel smelter. 1H23 trade revenue was 18.665 billion yuan, or -39.05% over the same period. Affected by falling prices of major products, the company's gross margin fell 0.17 percentage points month-on-month to 4.32% in 2023.

Performance declined month-on-month due to factors such as impairment of assets, loss of changes in fair value, and profit and loss of minority shareholders. In 2023, the company's asset impairment loss was +200.13% to $115 million, fair value change income was -144.90% to -32 million yuan, and minority shareholders' profit and loss was +93.07% to $106 million. Q2 performance declined month-on-month due to multiple factors.

Semiconductor material preparation technology is further advanced. Since May, the Shaoguan Smelter has independently and successfully synthesized gallium arsenide polycrystals, 6N high-purity, and high-quality gallium arsenide single products. On August 8, the Shaoguan Smelter successfully prepared industry-leading high-quality indium phosphide single crystal ingots, marking that the company has taken another solid step in the field of semiconductor materials, laying the foundation for the industrialization of 860,000 high-purity semiconductor substrate materials projects.

Profit Forecast & Investment Advice

According to the company's 1H23 business situation and business plan, we lowered the company's net profit for 23-25 by 10%/3%/11%. We expect the company's revenue for 23-25 to be 768/851/91.9 billion yuan, net profit to be 13.94/17.49/2.157 billion yuan respectively, EPS is 0.37/0.47/0.58 yuan respectively, and the corresponding PE is 14.05/11.20/9.08 times, respectively. Maintain a “buy” rating.

Risk warning

Production capacity release falls short of expectations; product prices fluctuate greatly; risk of fluctuations in the RMB exchange rate.