Benefiting from rising gold prices and optimized management costs, 2023H1's performance increased significantly year over year. It is expected that in the future, the company will benefit from the potential for volume increase and cost reduction brought about by the commissioning of projects such as offshore gold mines, as well as the momentum of valuation restoration during the gold price boom cycle. We are optimistic about the company's allocation value, maintain the company's target price of HK$14 per share in 2023, and maintain the “buy” rating.
2023H1's performance increased significantly year over year. 2023H1 achieved operating income of 3.447 billion yuan, a year-on-year decrease of 2.5%, and a year-on-year decrease of 20.8%; realized net profit of 253 million yuan, a year-on-year increase of 134.6%, and a year-on-year decrease of 14.0%. 2023Q2 achieved operating income of 1.75 billion yuan, a year-on-year decrease of 7.6%, and a year-on-year increase of 3.3%; realized net profit of 154 million yuan, a year-on-year increase of 556.0%, and a year-on-year increase of 56.2%.
2023H1's performance increased significantly year over year, mainly benefiting from higher gold prices and reduced management expenses.
We expect the company's self-produced gold production to be steady, and we await the potential for volume increase brought about by the commissioning of offshore gold mines. By 2023H1, the company achieved a total gold output of 11.8 tons, including 8.4 tons of mineral gold, -2.7% year-on-year. According to our estimates, the slight decline in 2023H1's mineral gold production may be affected by the decline in buyout gold and by-product gold production, and the company's core self-produced gold production may have remained steady. Since the disruption from the shutdown of production in 2021 was eliminated, the company's self-produced funds have been in a good state of operation. Projects such as the renovation and expansion of the Jintingling Gold Mine Caogoutou in the short-term dimension have increased the guarantee for the company's steady production. The potential for increasing the volume of the gold mine in the medium term is worth looking forward to.
Actively promote cost reduction and efficiency, and cost improvements were made month-on-month. The comprehensive cost of Kegin for 2023H1 was 214.67 yuan/gram, up 10.7% from the previous year. It was mainly affected by factors such as increased safety costs and the promotion of electronic detonators. Faced with the rising cost pressure brought about by the above policy requirements, the company actively optimized production. The selected grade of 2023H1 and the beneficiation recovery rate were 0.06 g/ton and 0.95% higher than the annual planned value, respectively. According to the company's financial report, we calculated that the comprehensive cost of 2023H1 Company Kejin fell 6.8% month-on-month, and the cost reduction effect was remarkable. On the cost side, 2023H1's management fees/sales and distribution costs/financial costs were RMB 572/0.15/311 million respectively, a year-on-year change of -11.5%/-12.6%/+11.1%; accounting for 16.6%/0.4%/9.0% of revenue, and a year-on-year change of -1.7/-0.1/+1.1 pcts. The improvement in management costs and fee rates shows the effectiveness of the company's fee reduction.
With the addition of internal and external two-wheel drive, the increase in the company's resource volume is highly sustainable. In terms of endogenous storage growth, the company continues its enthusiasm and efficiency in prospecting and increasing storage. 2023H1 added nearly 14 tons of gold resources. Drilling at the Xiadian Gold Mine and the Golden Eagle in Subei indicated continued increase in storage potential. In terms of extended acquisitions, the company completed the acquisition of the Beishan Gold Mine in May 2023. The mining area has 17.26 tons of gold resources, with an average grade as high as 10.58 g/ton. The company's “Double H” strategic layout has once again fallen. We believe that “endogenous storage growth+extended acquisition” will provide sufficient guarantee for the sustainability of the company's resource growth.
The underestimated value growth leader has fully benefited from the gold price boom cycle. The company has a low market-capital-resource-volume ratio and market-capital-to-production ratio. As of the close of August 30, 2023, the market-capital-resource-volume ratio and market-capital-to-output ratio were 34 million yuan/ton and 1,888 million yuan/ton, respectively, still significantly below the industry average of 148 million yuan/ton and 4,050 million yuan/ton. According to our rules of resumption of the gold price rise cycle in history, in the stage of rapid rise in gold prices, companies with a lower market capitalization to output ratio and higher gold price flexibility are more favored. We believe the company is expected to benefit from the gold price boom cycle in the future.
Risk factors: Risk of performance fluctuations due to large fluctuations in gold prices; construction progress of offshore gold mining projects falls short of expectations; suspension or reduction of production due to disruptive events such as environmental protection and safety; company mine storage growth falls short of expectations; cost control falls short of expectations.
Profit forecasting, valuation and ratings: Benefiting from rising gold prices and optimized management costs, 2023H1's performance increased significantly year over year. It is expected that in the future, the company will benefit from the potential for volume increase and cost reduction brought about by the commissioning of projects such as offshore gold mines, as well as the momentum of valuation restoration during the gold price boom cycle. We maintain the company's net profit forecast for 2023-2025 at 7.9/98/1.88 billion yuan, respectively. Currently, the average EV/EBITDA of a comparable company is 14.5 times. Considering the high purity of the company's gold business, the company was given an EV/EBITDA valuation of 15 times in 2023, maintained a target price of HK$14 per share, and maintained the company's “buy” rating.