Events:

On October 27, 2023, the company released its third quarterly report. Revenue reached 33.798 billion yuan, up 26.31 percent over the same period last year; net profit from return to home was 523 million yuan, down 22.19 percent from the same period last year; net profit from non-return to mother was 421 million yuan, down 17.13 percent from the same period last year; and basic earnings per share was 0.04 yuan per share, down 24.07 percent from the same period last year. In the first three quarters, revenue reached 102.595 billion yuan, up 15.69 percent over the same period last year; net profit returned to the mother was 2.576 billion yuan, down 9.00 percent from the same period last year; net profit after deducting non-return to the mother was 1.846 billion yuan, up 5.65 percent over the same period last year; and basic earnings per share was 0.20 yuan per share, down 9.38 percent from the same period last year.

Mining and metallurgical plates benefit from rising copper prices and processing fees

According to the previous data, the average price of cathode copper in the first three quarters of 2023 was 68151 yuan / ton, an increase of 0.9% over the same period in 2022; copper rough / refining processing fees (TC/RC) were 86.8, 8.68 and 7.45 respectively in the same period in 2022. The company's mineral copper and smelting plate both benefited. Looking to the future, interest rate increases by major overseas central banks are coming to an end, domestic policy measures to stabilize growth have been launched one after another, and the center of gravity of copper prices is expected to move further upward.

The impairment of assets and the decline in sulfuric acid prices affect the profits of the current period.

In the first three quarters of 2023, the company set aside 281 million yuan for inventory decline, 6.1442 million yuan for credit impairment and 14900 yuan for fixed assets impairment, totaling 287 million yuan. In addition, the average price of sulfuric acid, a by-product of smelting, was 219.6 yuan per ton in the first three quarters of 2023, a sharp drop of 67 per cent compared with the same period in 2022.

Mirado Copper Mine injection opens a New era of growth

In December 2022, the company signed a framework agreement with Nonferrous Group to acquire its 70% stake in China Railway Construction Copper Guan for 6.67 billion yuan, and the transfer of ownership was completed in August 2023. Its core asset is the Mirador Copper Mine, which will reach production in the first phase of the project in 2021, with an ore handling capacity of 2000 million tons per year and an annual production of about 90,000 tons of copper concentrate (the actual production of copper concentrate contains 121200 tons of copper in 2022). The second phase of the project is expected to be put into production in June 2025 and reach production in 2027. At that time, the total handling capacity of copper ore in the first and second phases will reach 4620 million tons per year, and it is expected to produce about 200000 tons of copper concentrate per year. The average cost is expected to be further reduced, the company's mineral copper output is expected to increase from the current 50,000 tons / year to nearly 200,000 tons / year, and the raw material self-sufficiency rate is expected to increase from the current 3% to more than 10%.

Earnings forecast, valuation and rating

We estimate that the company's revenue in 2023-25 will be 1350.07, 1393.3, and the corresponding growth rate will be 10.80%, 3.20%, 18.49%, 10.7%, respectively, and the net profit will be 35.84, 37.55, 4602 million, 31.27%, 4.77, 22.57%, 19.0%, 19.0%, and 0.280.300.36 per share, respectively. Considering that the first phase of the Mirado Copper Mine project has reached production, with the completion and commissioning of the second phase of the project, the output of mineral copper is increasing year by year, which is expected to further enhance profitability, the company has a certain growth attribute. We give the company 14 times PE in 2024, with a target price of 4.20 yuan. Maintain a "buy" rating.

Risk hints: the risk of product price fluctuation, the risk that the development progress of Mirado Phase II project is not as expected, the risk of uncertainty of mineral resources, overseas political and security risks, and so on.