Key points of investment
Performance summary: The company released its semi-annual report for 2023. In the first half of 2023, it achieved operating income of 2,362 million yuan, a year-on-year decrease of 15.60%; realized net profit of 381 million yuan, a year-on-year decrease of 12.72%; realized net profit after deducting non-return net profit of 383 million yuan, a year-on-year decrease of 12.19%. Among them, in the second quarter, the company achieved operating income of 1,222 million yuan, a year-on-year decrease of 0.04%; realized net profit of 193 million yuan, an increase of 29.27% over the previous year; net profit after deducting non-return net profit of 196 million yuan, an increase of 30.97% year-on-year.
Extreme weather affects shipping, and the decline in sales volume compounded by the fall in mineral prices has led to a decline in the company's profit: Currently, more than 90% of the company's profit is contributed by the magnetite business, and the decline in 2023H1 magnetite sales volume and price has led to a year-on-year decline in the company's net profit. Volume: 2023H1 Torrential rain in South Africa caused flooding, the country entered a state of disaster, and rail and port transportation was restricted. The company's magnetite sales volume was about 2,735,700 tons, down 28.57% from the previous year; price: 2023H1, 62%, the price of tasted iron ore Platts was 118.42 US dollars/ton, down 15.14% from the previous year;
The loss of volume and price in the magnetite business led to a year-on-year decline in the company's profit. 2023H1's copper business is in the phase I project nearing closure. The company sold 9994 tons of copper metal, an increase of 14.65% over the previous year. In addition, at 2023H1, the company sold 69,300 tons of vermiculite, a year-on-year decrease of 16.71%.
The impact of extreme weather has weakened, and interest income has increased the company's profit margins. In 2022Q3-2023Q2, the company's net profit to parent was -23 million yuan, 253 million yuan, 188 million yuan and 193 million yuan respectively. The company's profit in 2023Q2 increased by 2.66% month-on-month. Volume: Since April 5, 2023, South Africa has ended its state of national disaster. The company's magnetite shipments are expected to increase slightly month-on-month in 2023Q2. Price: 2023Q2, 62% grade iron ore, the Platts Index price was 110.80 US dollars/ton, down 11.75% from the previous month. 2023H1's interest income was 159 million yuan, a sharp increase of 113.71% over the previous year. According to the company's announcement, the company currently has 4.905 billion yuan in cash on hand. Since the company's business entities are in Hong Kong, China and South Africa, respectively, a large amount of the company's monetary capital is shown as US dollar deposits in Hong Kong and rand deposits in South Africa. In 2023H1, the US dollar appreciated sharply due to the Fed's interest rate hike. It is expected that the company's interest income on US dollar deposits in Hong Kong will increase dramatically, increasing the company's profits.
High demand is compounded by supply rigidity, and the iron ore price center is expected to shift upward. Demand side: At present, China's average production of molten iron water remains around 2.4 million tons per day, which is higher than the average for the same period in previous years. As stimulus policies for the real estate industry continue to be introduced and the pace of economic recovery continues to advance, demand in the iron ore industry is expected to continue to grow. Supply side: According to our supply analysis, it is estimated that the global iron ore supply will be added by about 23 million tons in 2023, and the scale of additional supply is too small. In the context of marginal improvements in the supply and demand pattern, the iron ore price center is expected to gradually move upward in the future.
The second phase of the copper project is about to be scaled up, opening up new profit points for the company. The company's copper mining business is currently at a point where the first phase is nearing closure and the second phase of the project is about to be put into production capacity. According to the company's announcement, the second phase of the copper project is expected to be partially put into operation in the third quarter of 2023, and all completed by the end of 2024. According to the company's plan, the second phase of the copper project can achieve 70,000 tons/year of metallic copper production after full production. Assuming that after the project is put into operation, the cost of refining copper is 35,000 yuan/ton, and the price of electrolytic copper is 65,000 yuan/ton. Considering the local corporate income tax rate in South Africa and the net profit calculation ratio, it is expected that after full production, the second phase of the copper project will contribute 672 million yuan in net profit to the company every year, greatly increasing the company's profitability.
Profit forecast and investment advice: As the second phase of the copper project is gradually put into operation and iron ore prices remain high, the company's performance is expected to continue to grow. Considering that the disaster situation in South Africa in the first half of the year affected some iron ore shipments, we adjusted the company's profit forecast. It is estimated that the company's net profit for 2023-2025 would be 941, 13.11, and 1,652 billion yuan, respectively, EPS of 1.44, 2.01, and 2.53 yuan, respectively. The corresponding PE at the closing price on September 1 would be 11.1, 8.0, and 6.3 times, maintaining the “increase in holdings” rating.