The company released its 2023 mid-year report, and performance growth exceeded expectations
Performance growth exceeded expectations. On the evening of August 25, 2023, Tongling Nonferrous Metals released its 2023 annual report. In the first half of 2023, the company achieved revenue of 68.797 billion yuan, an increase of 11.10% over the previous year; realized net profit of 1,429 billion yuan, an increase of 2.57% over the previous year; achieved net profit of 1,425 billion yuan after deducting non-return net profit of 1,425 billion yuan, an increase of 15.02% over the previous year. Among them, in the second quarter, the company achieved operating income of 34.46 billion yuan, an increase of 4.51% over the previous year; achieved net profit of 775 million yuan, an increase of 1.31% over the previous year; and achieved net profit of 704 million yuan after deducting non-return net profit of 704 million yuan, an increase of 19.32% over the previous year.
The production capacity of copper products is leading in China, and production continues to expand production and efficiency
The company is a major domestic cathode copper manufacturer and copper foil manufacturer. It has deep technical accumulation in fields such as copper ore mining, copper smelting and copper foil processing. In 2022, the company produced 1,628,700 tons of cathode copper, accounting for 14.73% of the total domestic output, ranking in the leading position in the country; the copper foil production capacity reached 55,000 tons, and achieved mass production of RTF copper foil and 6 micron lithium foil for 5G communications, making it the main supplier to leading enterprises in the industry. In 2022, construction of 15,000 tons of copper foil in Chizhou and 10,000 tons of lithium battery copper foil in Tongling began. After the project is completed and put into operation, the company will have the capacity to produce 80,000 tons of various high-precision electronic copper foils per year.
Acquired 70% of China Railway Construction Tongguan's shares
The company plans to issue shares, convertible corporate bonds and pay cash to purchase 70% of its shares in China Railway Construction Tongguan, and also plans to issue convertible corporate bonds to no more than 35 specific investors to raise supporting capital. The transaction price is 6.673 billion yuan. The core asset of China Railway Construction Copper Crown is the Mirador copper mine in Ecuador. As of December 24, 22 (evaluation reference date), the Mirador1 (Acumulada) mining area covered an area of 2,985 hectares; the amount of resources held was 1464.76 million tons, of which the Mirador mining area had 772.36 million tons of resources and the MiradorNorte mining area had 692.1 million tons of resources. Copper grade 0.47%, equivalent to about 5.759 million tons of copper metal; associated gold grade 0.12 g/ton; associated silver resources of 772.3 million tons, average Ag grade of 1.314 g/ton. All associated silver is in the Mirador deposit. The first phase of the project was put into operation in 2019, and it is planned to expand production to 26.4 million tons/day this year, with an estimated mineral copper output of about 120,000 tons; the second phase has a production capacity of 1.8 million tons/day, and is expected to be put into operation in June 2025. The annual mineral copper production is expected to be 200,000 to 220,000 tons after commissioning, bringing an increase of about 150,000 tons to the company's mineral copper production.
Profit forecasting
The company is expected to achieve operating income of 1327.78/1358.29/137.586 billion yuan in 2023/2024/2025, an increase of 8.97%/2.30%/1.29%, respectively; net profit to the parent is 32.14/37.93/4.163 billion yuan, respectively, an increase of 17.71%/18.01%/9.77%, and corresponding EPS of 0.31/0.36/0.40 yuan, respectively.
Based on the closing price of 3.33 on September 1, 2023, the corresponding PE corresponding to 2023-2025E is 10.91/9.24/8.42 times, respectively. Maintain a “buy” rating.
Risk warning:
The macroeconomic economy fell short of expectations; the Fed's monetary policy exceeded expectations; capacity building fell short of expectations.