Main points of investment:
The company issued the announcement on the Construction Progress of the Fund-raising Investment Project on September 27, 2023: the first crusher in the crushing system in the second phase of the project has completed the installation and commissioning of the machinery and equipment and entered the pre-trial production stage. According to the company announcement, after the crusher is put into use, the copper ore of the second phase can begin to produce gradually, which will gradually increase the output of the company's copper products, promote the development of the company's main copper industry, and enhance the company's sustainable operating ability and profitability.
The second phase of the copper mine began trial production, which is expected to become the profit growth point of the company. According to the company announcement, in recent years, due to the depletion of resources in the first phase of copper projects, copper production has declined significantly, and the gradual decline in grade has led to a rise in costs, which is a drag on the profitability of the copper business. The first crusher of the second phase of the project has begun trial production, and the subsequent second phase of the mine is expected to make a substantial contribution to production: according to the company's announcement, the second phase of the mine is designed to have a raw mineral capacity of 11 million tons, and the corresponding copper capacity is expected to reach 70,000 tons when it reaches production. there is a significant increase over the output of 23300 tons in 2022. At the same time, the average copper grade of the second phase of the mine is about 0.8%, which is higher than 0.68% of the first phase of copper mine, so the profit per ton of copper business is expected to pick up in the case of rising grade.
Driven by the shortage of supply and demand and financial attributes, copper prices are expected to usher in an upward cycle in 2024. From the perspective of supply and demand, we expect the slow growth of global copper capital expenditure on the supply side, which will slow the growth rate of global copper supply in 2024-2025, while the demand-side copper will continue to grow depending on new energy, and copper supply and demand are expected to be in short supply in 2024-2025. From the perspective of financial attributes, we expect the Fed to raise interest rates to the end, and in the future, as inflation falls and the risk of recession increases, which leads to the Fed to start an interest rate cut cycle, financial attributes are expected to push up copper prices.
Iron ore prices have stabilized, and the profit contribution of iron ore business is relatively stable. According to wind, the average price of iron ore for 2023Q1 and Q2 is about $126 and $111a per tonne, respectively. Since the beginning of July, the average price has been $114per tonne, up slightly from the second quarter as a whole. Our analysis shows that when the supply end is concentrated in the four major overseas mines, iron ore has strong bargaining power in the industrial chain, so the price toughness is strong, and it is expected that the follow-up company's iron ore business can steadily contribute profits.
Investment analysis opinion: the company's second phase of the mine began trial production, copper sales are expected to continue to grow, copper plate performance with high growth. We keep the company's original profit forecast unchanged, and estimate that the net profit of 2023 Universe will be RMB 8.93 million in 2025, corresponding to 12 times, 9 times and 7 times of PE for 23-25 years, respectively, and maintain the overweight rating.
Risk hints: lower-than-expected downstream demand and falling copper and iron ore prices; the risk that copper production may fall short of expectations as a result of turmoil in South Africa; and rising sea freight.