Key points of investment:
Event: The company released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 102,595 billion yuan, +15.7% year-on-year, and net profit of 2,576 billion yuan, -9.0% year-on-year. On a quarterly basis, 2023Q3 revenue for the single quarter was 33.8 billion yuan, +26.3%, -1.9%; net profit was 520 million yuan, -22.19%, and -32.5% month-on-month.
Smelter equipment overhauls led to a decline in Q3 performance. Price: 2023Q3, the average price of cathode copper is 692,000 yuan/ton, +2.4%; rough processing fee is 92.94 US dollars/ton, +6.1%; the average price of sulfuric acid is 232.96 yuan/ton, +23.3% month-on-month. Volume: According to Baichuan Yingfu statistics, Jinlong Copper, a subsidiary of the company, began an equipment overhaul on September 1. The overhaul lasted 25 days. The smelting production capacity of Jinlong Copper was 450,000 tons. According to estimates, this overhaul may affect production of nearly 40,000 tons. Benefits: After the Mirador copper mine was injected, the company's copper concentrate self-sufficiency rate increased significantly, thereby significantly increasing gross margin. 23H1's gross margin was 5.0%, and the gross margin for the first three quarters was 7.7%.
The Mirador copper mine merged for the third quarter, increasing the company's profit. The Mirador Copper Mine completed the transfer in August 2023. Its performance before the transfer was reflected in non-recurring profit and loss. The non-recurring profit and loss for the first three quarters was 730 million yuan, of which the non-recurring profit and loss for the Q3 quarter was 100 million yuan. From this, it can be seen that the Mirador Copper Mine's performance is relatively stable, with a monthly contribution of around 100 million yuan.
The Mirador Phase II project is being actively promoted, which can bring long-term growth to the company. The Mirador copper mine holds 6.03 million tons of copper metal, 3.2 times the amount originally controlled by the company. The first phase of processing volume is 20 million tons. According to research reports, the copper metal production is 90,000 tons, the actual copper production can reach 120,000 tons, the actual copper production can reach 120,000 tons, the second phase design production capacity is 26.2 million tons, and actual copper production can reach 280,000 tons after production is put into operation. The second phase is expected to be put into production in mid-2025. In addition, the Mirador copper mine produced 2.5 tons of associated gold and 32.8 tons of associated silver in 2022. After the second phase is put into operation, gold production is expected to reach 5.7 tons and silver production to 75.7 tons.
Profit forecast and investment suggestions: Considering the increase in cost rates driven by smelter maintenance and the Mirador copper mine merger, we lowered our 23-25 profit forecast. The estimated net profit for 23-25 was 38.63/41.43/4.4838 billion yuan (previous value: 45.89/51.85/6.06 billion yuan). The corresponding EPS was 0.30/0.33/0.38 yuan respectively. The reference comparison company gave 11.1 times PE, corresponding target price of 3.39 yuan, giving it a “buy” rating.
Risk warning: downstream demand falls short of expectations, copper ore production falls short of expectations, copper prices fall short of expectations