Event: Shengda Resources released its semi-annual report for 2023. The company's 23H1 revenue was 817 million yuan, +35.04% year-on-year, and net profit was 61.15 million yuan, or -40.97% year-on-year. Among them, Q2 revenue was 536 million yuan, +43.5% year-on-year, +91.0% month-on-month, and net profit of 44.89 million yuan, or -34.4% year-on-year, and +176.1% month-on-month.
The decline in zinc prices is putting pressure on revenue, and the non-ferrous metals trading business is growing. The company's mining resources are concentrated in the central part of the Inner Mongolia Autonomous Region. Affected by climate factors, Q1 is basically based on sales of previous year's inventory. 23H1's procurement business revenue was 436 million yuan, -18.5% year-on-year. By product: The company's 23H1 lead powder revenue was 261 million yuan, -16.1% year-on-year; zinc powder revenue was 171 million yuan, -20.3% year-on-year, affected by the decline in zinc prices. According to data from the previous period, the average price of 23H1 zinc metal futures was 21,600 yuan/ton, -16.4% year-on-year; non-ferrous metals trade revenue was 304 million yuan, +519.1% year-on-year. 23H1's non-ferrous metals trading business increased; renewable energy metals revenue was 76.1 million yuan, +276.6% year-on-year.
Mineral resources have significant advantages, and endogenous and epitaxial extensions drive growth. The company has six high-quality primary mining resources, silver reserves of nearly 10,000 tons, and an annual mining capacity of nearly 2 million tons. Among the mines awaiting production, Dongsheng Mining, a second-tier holding subsidiary, has obtained a mining license of 250,000 tons/year and is carrying out preparations before construction of the mine; Deyun Mining is in the process of completing the relevant procedures for exploration and conversion. In terms of urban mining operations, the first phase of the “Solid Waste Harmless Resource Comprehensive Utilization Project” has been basically completed, forming 200,000 tons/year hazardous waste disposal capacity.
Investment advice
23H2 Nonferrous metal prices ushered in a restorative rebound trend. The company increased its mining efforts for high-grade metal ore segments, and Dongsheng Mining and Deyun Mining contributed to growth after their production capacity was released. We expect the company's net profit for 2023-2025 to be 38/47/ 530 million yuan respectively (previous value was 54/680 million yuan in 2023-2024, lowered after careful consideration of the risk of falling zinc prices), corresponding PE to 26.5/21.5/19.2 times, respectively, maintaining the “buy” rating.
Risk warning
Prices of lead, zinc, and silver have fluctuated greatly; prices of silver have fluctuated greatly; progress in new projects has fallen short of expectations, etc.