The company's net profit from parent fell 36% year over year in 2023H1. 2023H1 achieved revenue of 37.2 billion yuan (+3.9%), net profit of 540 million yuan (-36.3%), net profit of non-attributable net profit of 503 million yuan (-38.8%), and net operating cash flow of 47 million yuan (-90.4%). Among them, 2023Q2's quarterly revenue was 20.4 billion yuan (-3.3%), net profit attributable to mother was 220 million yuan (-57.3%), net profit not attributable to mother was 195 million yuan (-59.8%) after deducting non-return net profit. The decline in profit was mainly due to a drop in zinc prices. The spot price of 2023H1 zinc was 22,132 yuan/ton, down 3,757 yuan/ton from the previous year. The company produces 190,000 tons of zinc concentrate per year. The decline in zinc prices can basically correspond to the decline in the company's profit.

The copper smelting business progressed smoothly, increasing revenue and profit: After being incorporated into the copper smelting business in the first half of the year, the company's revenue and profit structure changed markedly. First, the share of trade business revenue fell from 80% to 50%. With the inclusion of copper smelting business, the company actively reduced the scale of trade business. Trade business revenue fell 39% year-on-year in the first half of this year; second, the copper smelting business became an important part of the company's revenue and profit.

In the first half of the year, the subsidiary Zhongjin Copper produced 192,000 tons of cathode copper, contributed 13.2 billion yuan in revenue, 245 million yuan in net profit, 35% of revenue, and 34% of gross profit. Roughly estimated that a single ton of cathode copper wool had a profit of 2,750 yuan/ton, and a net profit of 1,300 yuan/ton, which was significantly higher than the industry average. This year was the first year the company entered the copper industry chain. The merger and acquisition of the copper smelting business achieved production in that year, was profitable and lucrative; in the first half of this year, zinc prices were under significant pressure, while the copper smelting sector gained strength to hedge against the decline in profits in some of the lead-zinc sector.

Risk warning: There is a risk that copper and zinc prices or copper concentrate processing fees will fall, and the mine commissioning progress will fall short of expectations.

Investment advice: Lower the profit forecast and maintain the “increase in holdings” rating.

Assuming that the zinc price in 2023-2025 was 22,000 yuan/ton (previous value: 23,000 yuan/ton), the zinc concentrate processing fee (previous value: 5,500 yuan/ton), the copper price was 68,000 yuan/ton, and the copper concentrate processing fee was 88 US dollars/ton, the company's revenue for 2023/2024/2025 was 781/842/96.3 billion yuan, respectively, with a year-on-year growth rate of 41.1/7.8/ 14.4%. The net profit of the parent mother was 12.74/14.06/2,267 billion yuan, respectively (previous value: 1,413 yuan/ton) /1,486/2,208 million yuan), with a year-on-year growth rate of 5.1/10.4/61.3%, and diluted EPS of 0.34/0.38/0.61 yuan, respectively. The PE corresponding to the current stock price is 14.7/13.3/8.2x, respectively. The company is a leading producer of lead-zinc mining and metallurgy in China. It has high-quality lead-zinc mines such as the Fankou lead-zinc mine. The total amount of non-ferrous metal resources such as copper-zinc-lead has been proven to be nearly 10 million tons. Through the merger and acquisition of the Dongying Fangyuan Copper Smelter, the company officially entered the copper industry chain. The copper smelting business increased revenue and profits in the first half of the year. A supporting copper mine will be built next year, further opening up room for growth and maintaining the “increase” rating.