Introduction to this report:
China Railway's self-produced copper and molybdenum production capacity already ranks among the highest in the domestic industry. The number of new 2023Q4 signatures increased by 23.7% year-on-year, and equity incentives increased the certainty of growth. 2024PE4.1/PB0.58 At the bottom of history, the State Assets Administration Commission launched a market value management assessment.
Incidents:
On March 13, the price of LME copper rose by 3.04% in a single day.
Commentary:
The rise in copper prices has boosted the profit expectations of China's China Iron and Copper Mine, and the expected increase in US dollar interest rate cuts will benefit non-ferrous metals prices. (1) Maintain the increase in holdings. Maintain the forecast for 2023-2025 EPS of 1.37/1.55/1.74 yuan, an increase of 8/13/ 12%, and maintain the target price of 11.5 yuan, corresponding to 8 times PE in 2023. (2) On March 13, the price of LME copper rose by 3.04% in a single day, and the settlement price for that day was 8927 US dollars/ton. Since the low on February 9, the LME copper price has increased by 9.8% cumulatively. (3) According to the opinion of the report released by Guotai Junan's overseas macro research team, expectations of US interest rate cuts have heated up, and the 10-year US Treasury yield has declined since March 1, mainly due to trading in anticipation of interest rate cuts. (4) The report on the work of the government plans to issue ultra-long-term special treasury bonds for several consecutive years starting in 2024, specifically for the implementation of major national strategies and security capacity building in key areas.
The mine's own copper and molybdenum production capacity already ranks among the highest in the domestic industry, and mineral resources bring profit flexibility. (1) It has Heilongjiang Luming Molybdenum, Huagang SICOMINE copper-cobalt ore, etc. 2023H1 copper production decreased by 6% to 148,300 tons, cobalt production decreased by 5%, molybdenum production by 0.81 million tons increased 4%, lead production increased by 33% to 60,000 tons, zinc metal production increased by 50%, and silver metal production by 30.67 tons increased 32%.
(2) Net profit of 2023H1 China Railway Resources increased by 0.5% to 2.5 billion yuan (estimated at 5 billion yuan in 2023). In 2023, PE Zijin Mining is 18.4 times 15.5 times that of Luoyang Molybdenum. The market value of mineral resources may be comparable to about 85 billion yuan (total market value of 160 billion yuan). (3) Mineral resources account for about 1/7 of net profit to mother, and rising copper prices will bring about profit elasticity.
Equity incentives increased growth certainty, and new 2023Q4 signings increased 23.7% year-on-year. (1) China Railway's net profit has increased by 15.6% in the past ten years (minimum increase of 2% and maximum increase of 38%). The equity incentive requirement is to deduct non-net profit CAGR of at least 12% and deduct unweighted ROE of at least 10.5%/11%/11.5% based on 2020. (2) In 2023, new signings of 3.1 trillion yuan increased by 2.2%, a two-year compound growth rate of 6.6%.
2023Q1-Q4 signed 6674/6064/5285/129.84 billion, an increase of 10.2/0.03/-31.5/ 23.7%. (3) In 2023, domestic orders of 2.90 trillion yuan (accounting for 94%) increased by 1.8%, and overseas orders of 1998 billion yuan (accounting for 6%) increased by 8.7%. (4) As of the end of the third quarter, the unfinished contract amount was 5.7 trillion yuan, and the revenue guarantee multiplier was 4.9 times.
China Railway 2024PE4.1/PB is 0.58 times lower in history, and the State Assets Administration Commission has fully implemented a market value management assessment.
(1) China Railway's 2024 PE is 4.1 times (maximum PE average 14 times /2015 maximum PE 40 times), and the price-earnings ratio fraction in the past 10 years is 12%. The company's current PB is 0.58 times, and the net market ratio fraction for the past 10 years is 6%. PE and PB are all at the bottom of history. (2) On January 29, the State Council's State-owned Assets Administration Commission stated that it will comprehensively implement market value management assessments for listed companies, adhere to equal emphasis on process and results, equal incentives and restrictions, quantitatively evaluate the market performance of listed companies controlled by central enterprises, and objectively evaluate the market value management initiatives and results of enterprises.
Risk warning: macroeconomic policy risk, non-ferrous metal price fluctuation risk, overseas business risk, etc.