Main points of investment
Event: Zhaojin Gold Industry announced its performance in the first nine months of 2023. The income in the first nine months increased by 10.3% to 6.38 billion yuan compared with the same period last year, and the net profit of returning mother increased by 37.7% to 370 million yuan compared with the same period last year. If you look at Q3 alone, the revenue increased by 37.3% to 2.76 billion yuan, while the net profit of returning mother decreased by 21.1% to 130 million yuan.
Comments: Q3 gold price high shock, RMB exchange rate difference support Shanghai gold trend stronger than the international gold price, the company's production progress in the first three quarters is in line with expectations, we estimate that the confirmation of R & D expenses led to a slight increase in gram gold cost-expense month-on-month; excluding a total of about 180 million yuan of impairment & fair value fluctuations and other one-time effects, the adjusted net profit is about 311 million yuan, basically flat.
The price of gold on the Q3 exchange rose 12 yuan / g from the previous month.
It is estimated that the output of Q3 self-produced gold decreased slightly from the previous month, increased compared with the same period last year, and the production progress was in line with expectations.
Q3 management expenses increased by 79.15 million yuan to 350 million yuan month-on-month, mainly due to the increase in R & D expenses.
Q3 pays off interest-bearing liabilities of about $2.1 billion to $20.2 billion.
Non-recurring gains and losses include asset impairment of 60 million, fair value loss of 55 million and investment income loss of 67 million. The latter two are the company's strategic investments in overseas gold mines, which are recorded at fair value, and the changes in the underlying stock prices are accounted for in profit and loss. We also saw a significant rebound in the underlying stock price in the fourth quarter.
Key projects are progressing steadily. A large number of key construction facilities in the sea area project are about to enter the construction stage, and the construction campaign is progressing smoothly, and the company plans to set up a non-ferrous Ruihai mining industry supervision station to ensure the high-quality construction of the project; Caogoutou mining area has successfully passed the on-site examination of the "production Safety license" and has taken a key step from an infrastructure mine to a production mine. The company will focus on "1, 3, 5"-the construction of Ruihai project, three tailing reservoirs and five key mining projects.
Our view:
Palestinian-Israeli conflict + U. S. debt interest rates at the end of the tension, bullish on gold. At the beginning of October, the Palestinian-Israeli conflict broke out, and the mood of risk aversion rose sharply. At the same time, the US government continues to issue additional treasury bonds, pushing the interest rate on 10-year US bonds to exceed 5%. The pressure of the expansion of US fiscal expenditure has also caused market concern, and the interest rates on US bonds are running out of steam. Later, we pay attention to the return of US debt to fundamentals, the resilience of the US economy after the consumption of excess savings, and the game of low-probability risk events. From the perspective of US debt, inflation and economy, we are bullish on gold.
1) the sea area gold mine is the "killer's mace" project of Zhaojin, with large reserves, high grade and low cost. It is expected to be put into production at the beginning of 2025 and reach production by the end of 2026, with an output of 16 tons per year. The output has increased by about 79% compared with the 2023 forecast, and the return net profit is about 187% compared with the 2023 forecast. The company is expected to return to the parent net profit CAGR=50% from 2023 to 2027.
2) Zijin and Zhaojin open the joint venture of equity and project, endowing and recruiting funds from technology to management. We adjusted our previous profit forecast and estimated that the company's annual return net profit in 23-24-25 was RMB 785 million, respectively, which was + 95.3%, 20.7%, 79.0%, and the target price was HK $14.02, maintaining the "buy" rating.
Risk tips: gold price fluctuation risk, mine production is not as expected, safety accidents and environmental protection risks.