Jinhui Co., Ltd. is rich in lead and zinc resources, and employee shareholding promotes high-quality development. Jinhui Co., Ltd. has rich reserves of lead and zinc resources, is in a good state of reserves, and has the advantage of resource endowment. The company currently has 3 mining rights, namely Guojiagou mining rights, Guojiagou South mining rights, and Xiejiagou mining rights; 3 prospecting rights; it owns Lijiagou Selection Plant and Ming Hao Mining Plant. As of 2023H1, the company has an ore mining capacity of 1.68 million tons/year. The company's main business is the mining and trading of non-ferrous metals. The main products are zinc concentrate and lead concentrate (containing silver). On February 15, 2023, the first phase of the employee stock ownership plan completed share purchases, totaling 16,480,162 shares, accounting for 1.69% of the company's total share capital. The transaction amount was 210,789,143.05 yuan (excluding transaction fees), and the average transaction price was 12.79 yuan/share. Li Ming, the actual controller of the company, provides underwriting guarantees to employees participating in employee stock ownership plans.

The integration of the Jiangluo mining area is worth looking forward to. On August 26, 2023, the company issued a notice and signed a “Strategic Cooperation Framework Agreement” with the Huixian County People's Government to carry out comprehensive strategic cooperation on the integration of the Jiangluo lead-zinc mining area. It plans to complete a total investment of about 5 billion yuan in the Jiangluo mining area and build a modern mine with an annual mining capacity of 3 million tons. According to the company's current selection capacity of 168,000 tons, after the production capacity of 3 million tons is fully implemented, the company's selection scale will increase dramatically by 179%. In addition, the company plans to acquire 100% of Hongtai Industrial's shares with its own capital of 50 million yuan to reserve mineral processing capacity in Jiangluo Town. Hongtai Industrial mainly engages in lead-zinc ore flotation business, providing beneficiation services for the company to carry out business in Jiangluo Town, and has short transportation distances and convenient transportation, which can effectively reduce transportation costs, increase profits, and help the company actively promote the integration and comprehensive utilization of local resources.

Profit forecast. In terms of production and sales volume, we expect the Guojiagou South Lead-Zinc Mine and Guojiagou Pb-Zn Mine to remain at full production in the next 3 years, while the newly acquired Xiejiagou lead-zinc mine has a production capacity of 180,000 tons, gradually climbing, plus the integrated growth of the Jiangluo mining area. We expect the production of lead metal in the company's concentrate from 2023-2025 to be 2.08/2.45/551,000 tons, and the amount of zinc-containing metal to be 5.94/6.92/1492 million tons, respectively. The increase comes from the fund-raising projects at the time of the company's listing.

In terms of prices, we expect lead prices to be 15,500 yuan/ton and zinc prices to be 21,500 yuan/ton in 2023-2025.

In terms of cost, we expect the cost in 2023-2025 to rise due to price fluctuations and rising labor costs of mineral processing agents, liners, steel balls and auxiliary materials. It is estimated that the unit metal sales cost in 2023-2025 will be 5926/6000/6050 yuan/ton, respectively. Based on the above volume and price assumptions, we expect net profit to be 3.4/4.2/1.02 billion yuan, respectively, with year-on-year growth rates of -27.3%, 22.2%, and 145.3%; EPS is 0.35/0.43/1.05 yuan/share, respectively. In terms of comparable companies, we chose Zhongjin Lingnan, whose main business is lead-zinc-copper mining and metallurgy, and Chihong Zinc-Germanium, a domestic lead-zinc leader, as comparable companies. As of December 05, 2023, the company's PE for 2023-2025 was 37.1x, 30.4x, and 12.4x, respectively. After the implementation of the Jiangluo mining area integration project, the company's mining scale is expected to increase by 179%, which will greatly enhance the company's ability to integrate and make comprehensive use of resources, and for the first time, it will be covered by a “increase in holdings” rating.

Risk warning: metal prices have dropped sharply; the progress of fund-raising projects has fallen short of expectations; accident risk affects the company's normal production