Key points of investment
Event: The company released its 2023 three-quarter report. The first three quarters achieved operating income of 3,984 billion yuan, an increase of 6.11% over the previous year, net profit of 667 million yuan, an increase of 61.36% over the previous year, and realized net profit of 673 million yuan after deducting non-return net profit of 673 million yuan, an increase of 62.09% over the previous year. Among them, in the third quarter, the company achieved operating income of 1,623 billion yuan, a year-on-year increase of 69.59%/32.82%, and realized net profit of 290 million yuan after deducting non-return to the mother, which reversed losses over the same period last year, up 47.96% from the same period last year.
The company's performance is in line with expectations.
Iron ore shipments have rebounded, and prices have been running at a high level. The increase in the company's performance was mainly due to South Africa entering a state of national disaster twice in the first half of the year, which affected railway transportation. It achieved sales of only 9994 tons of metal copper and 2,735,700 tons of magnetite. Since June, the company's shipping volume has begun to rise, and the company has adopted the M+2 format for pricing. The average price of iron ore and copper prices rose 7.64%/7.89% month-on-month, maintaining a high level of operation. The company's Q3 gross margine/net margin reached 62.75%/25.46%, an increase of 4.49/4.75pct over the previous month, and achieved a significant improvement in profit.
The share of sales expenses/financial expenses has declined. In terms of expenses, the company's sales expenses/management expenses/financial expenses in the first three quarters were 25.77%/9.23%/-6.09% respectively, down 7.01/0.22/3.2pct from 2022. Among them, sales expenses were mainly freight. The BDI/BPI index for the first three quarters fell 41.68%/41.64% compared to 2022, driving the company's sales expenses down 41.68%/41.64%. The decline in financial expenses was mainly due to the increase in interest income from company deposits.
Copper Phase II has entered the trial production stage, and production may be fully completed in 2024. The company's copper phase II project has a design production capacity of 11 million tons, corresponding to more than 70,000 tons of copper metal. It has now entered the trial production stage. Raw ore production has begun gradually, production may be fully reached in 2024, and full production will be achieved in 2025. Assuming that the average price of copper ore is 8,600 US dollars/ton and the ashore cost is 4,800 US dollars/ton, it is estimated that the net profit of the second phase of copper production is about 614 million yuan.
I am optimistic about the performance of commodities such as iron ore as the macro environment recovers. Policies have been introduced intensively since the third quarter. Real estate policies have continued to be relaxed, and trillion-dollar infrastructure has boosted demand for steel, etc. When the industrial inventory cycle bottoms out, commodities will be the first to reflect a recovery in demand, and we will continue to be optimistic about the subsequent performance of iron ore and copper during the replenishment cycle.
Investment suggestions: The company's Q4 iron ore shipment volume may continue to grow. Iron ore prices have risen 2.59% since October, and are expected to continue to rise throughout the year. Copper Phase II will gradually contribute profit in 2024-2025, providing new growth points for the company. We expect the company to achieve operating income of 54.48/72.80/9.352 billion yuan in 2023/2025, a year-on-year increase of 7.81%/33.64%/28.47%, respectively; Net profit is 8.01/11.20/17.11 billion yuan, respectively, year-on-year The increase was 20.24%/39.76%/52.83%, and the corresponding EPS was 1.23/1.72/2.62 yuan, respectively.
Based on the closing price of 16.21 yuan on November 3, 2023, the corresponding PE corresponding to 2023-2025E was 13.21/9.45/6.18 times, respectively, maintaining the company's “increased holdings” rating.
Risk warning:
Changes in the international trade environment, price fluctuation risk, geopolitical risk, exchange rate fluctuation risk, etc.