Due to the temporary increase in the proportion of buyout gold and by-product gold business, and the increase in financial costs caused by the superimposed high interest rate environment, 2023Q3's performance is under periodic pressure. With the steady operation of in-production projects and the continuous promotion of projects under construction, the company is expected to benefit from the performance growth brought about by volume increase and cost reduction under the prospect of stable production and increase in production. At the same time, the company intends to offer to acquire Tietuo Mining, highlighting the "double H" layout acceleration trend. We are optimistic about the allocation value of the company, maintain the company's target price of HK $14 per share in 2023, and maintain the "buy" rating.

The performance of 2023Q3 company is under pressure in stages. 2023Q3 achieved an operating income of 2.938 billion yuan, an increase of 30.4% over the same period last year, an increase of 67.7% over the previous year, and a net profit of 112 million yuan, down 28.6% from the same period last year and 27.1% from the previous year. 23Q1-3 achieved a cumulative operating income of 6.385 billion yuan, an increase of 10.3% over the same period last year, and a cumulative net profit of 365 million yuan, an increase of 37.7% over the same period last year. 2023Q3's performance declined year-on-year, which we believe is mainly affected by the loss of fair value and the increase in financial expenses. Excluding the impact of changes in fair value, the company's 2023Q3 realized a net profit of 154 million yuan, a year-on-year decline of 13.8%. The cumulative net profit of the company 23Q1-3 was 528 million yuan, an increase of 17.9%.

Mineral gold business continues to be sound, waiting for the incremental space brought by the landing of the project. We estimate that the company's 2023Q3 mineral gold output is more than 5 tons, of which the self-produced gold production remains at the single-quarter central level of more than 3 tons since 2023. In terms of buyout gold and by-product gold, we think that the company's 2023Q3 has increased part of its sales according to the market situation. Overall, we believe that the mineral gold business has remained robust since the disturbance was repaired after the company stopped production in 2021. Looking to the future, the determination to stabilize production and increase production in the short-term dimension of "anchoring projects to grasp increments" is expected to increase the guarantee for the company to realize its production plan during the year, while projects such as the reconstruction and expansion of Caogoutou in Jintingling Gold Mine will further increase the company's stable production. the potential for increasing the quantity of gold deposits in the sea area in the medium-term dimension is worth looking forward to.

The cost of self-produced gold business continues to be controlled, and the basic stability of gram gold cost is not easy to obtain. 2023Q3's overall gross profit margin was 38.6%, an increase of 3.1pcts over the same period last year, while a month-on-month decline of 6.7pcts. We believe that the month-on-month decline in the company's gross profit margin is mainly due to the structural impact of an increase in the proportion of buyout gold and by-product gold business with a relatively low gross margin, rather than a significant weakening of the company's core self-produced gold costs. We estimate that the comprehensive cost of 2023Q3 remains below 220yuan / g. In the general environment of the improvement of the extraction standard of safety supervision fees, we believe that the basic stability of the company's gold cost is not easy to obtain, and the self-generated gold business continues to achieve good cost control performance.

Continuous progress will be made to reduce fees and increase efficiency. The management fee of 2023Q3 Company was 328 million yuan, an increase of 24.6% over the same period last year, accounting for 11.2% of revenue, down 5.6pcts and 0.5pct compared with the same period last year. The improvement of the management expense rate is mainly due to the increase in revenue scale and the company's fee reduction measures. The financial expenses of 2023Q3 Company were 157 million yuan, an increase of 41.4% over the same period last year; 5.3% of revenue, an increase of 2.4pcts from the previous month, and an increase of 0.4pct over the same period last year. The month-on-month increase in financial expenses is mainly affected by the high interest rate environment in overseas markets.

Proposed acquisition of Tietuo Mining, "double H" strategic layout accelerated. The company announced that it intends to offer to acquire Tietuo Mining with 629 million Australian dollars (2.877 billion yuan). Tietuo Mining holds an 88 per cent stake in the Abuja gold mine in C ô te d'Ivoire. By the end of 2023H1, the Abuja gold mine had retained resources of 119.1 tons (with an average grade of 1 g / ton) and reserves of 42.3 tons (with an average grade of 1.15 g / ton). According to the company's acquisition announcement, Abuja Gold Mine began commercial production in July and will produce 5.29 tons of gold annually over the next nine years, with a total maintenance cost of US $982 / oz (214 yuan / g) during the mine service period. We believe that this move demonstrates the acceleration of the company's "double H" layout. First, the company took a stake in Tietuo Mining as a cornerstone investor in November 2021 and currently holds 7.02%. If the merger is completed, it will be transformed from a financial investment into a consolidated asset that contributes to production profits. Second, the acquisition consideration is 30 yuan / g, compared with the average consideration of 39 yuan / g for large-scale gold M & A projects provided by Bloomberg in 2021-2023, considering that the Abuja mine in C ô te d'Ivoire has been put into production, we think the acquisition consideration shows a certain advantage.

Risk factors: gold price fluctuates sharply; Tietuo Mining acquisition is not as expected; the construction progress of gold projects in the sea area is not as expected; production is suspended or reduced due to environmental protection, safety and other disturbance events; cost control is not as strong as expected.

Earnings forecast, valuation and rating: due to the temporary increase in the proportion of buyout gold and by-product gold business, and the increase in financial expenses caused by the superimposed high interest rate environment, 2023Q3's performance is under periodic pressure. With the steady operation of in-production projects and the continuous promotion of projects under construction, the company is expected to benefit from the performance growth brought about by volume increase and cost reduction under the prospect of stable production and increase in production. At the same time, the company intends to offer to acquire Tietuo Mining, highlighting the accelerated situation of the "double H" strategic layout.

We maintain the forecast of the company's homing net profit from 2023 to 2025 of 7.9 yuan 9.8 billion yuan respectively. The current average EV/EBITDA of comparable companies (Zijin Mining Group, Shandong Gold Mining, CICC) is 13.1 times. Considering the high purity of the company's gold business, the company is valued at 15 times EV/EBITDA in 2023, maintaining the target price of HK $14 per share and maintaining the company's "buy" rating.