2023 results fall short of our expectations
The company announced its 2023 results: achieved revenue of HK$7.36 billion, +102% year over year; net profit of HK$500 million, corresponding to profit of HK$0.065 per share, -3.5% year over year, lower than our expectations, mainly due to the fact that Austrian fines have not been reversed and mine production costs have increased.
Overall, the company's equity natural uranium production in 2023 was 1,277 Tu, +3% over the same period last year. On the production side, Kazakh Engineering lowered its production forecast for 2024 due to sulfuric acid supply issues, with a year-on-year increase of only 3%. The natural uranium mine in which the company is a shareholder will continue to implement the production reduction plan. On the cost side, there has been an overall increase due to increased employee remuneration in Kazakhstan, tax adjustments on the use of underground resources, and rising raw material costs.
On the side of Xie Company: In 2023, Xie Company's actual natural uranium production was 976.8 tU, of which the Xie mine produced 407.4 tU, the production cost was 27 US dollars/lb, the production cost was 569.4 tU, the production cost was 23 US dollars/lb, the production plan completion rate was 100.2%, and the operating situation was stable.
On the Austrian side: The actual production of natural uranium in 2023 is 1643.6 tU, of which the medium ore output is 1512.9 tU, the production cost is 17 US dollars/lb, the production cost is 130.7 tU, the production cost is 27 US dollars/lb, and the production plan completion rate is 97.2%. The failure to complete the production plan is mainly due to restrictions on procurement of raw materials such as sulfuric acid in Kazakhstan.
Trade side: The self-produced trade business covered 1,299 tU of natural uranium products, -1.7% year over year. Affected by the rise in uranium prices, the average selling price was 64.4 US dollars/lb, and the sales cost was 64.9 US dollars/lb. The international trade business sold 5670 TU, +86% year over year. The average price was 49.6 US dollars/lb, and the sales cost was 48.4 US dollars/lb.
Development trends
Natural uranium prices are expected to continue their upward trend in the medium to long term. Due to factors such as Cameco's plans to increase production, the spot price of natural uranium recovered from an earlier high of $106/lb to $88/lb on March 20. Although there have been short-term adjustments, we believe that the long-term positive trend in natural uranium prices will not change. First, the recovery in global demand for nuclear power will be the general trend. By the end of 2023, the world's installed capacity will be 372 GW, with 58 nuclear power units under construction worldwide; second, global natural uranium supply disruptions are frequent, and production capacity recovery is limited due to lack of sulfuric acid supply, and production capacity recovery is limited, and production plan for 2024 was lowered to 2.25 million Tu. Third, uranium mines in Kazakhstan are gradually being exhausted. The company expects that starting in 2028, production mines around the world will gradually enter a peak period of production cuts and decommissioning.
Profit forecasting and valuation
Due to the reduction of production plans for 2024 by Kazakh Engineering, we lowered our 2024 net profit by 10% to HK$800 million and introduced net profit of HK$1.09 billion in 2025, corresponding to 14.3 times and 11.5 times price-earnings ratios for 2024 and 2025. We keep our industry rating and target price unchanged, corresponding to 15.5 times and 12.4 times price-earnings ratios in 2024 and 2025, with 8% upside compared to the current stock price.
risks
1) Natural uranium prices fluctuate; 2) global nuclear power development fell short of expectations; 3) uranium ore production fell short of expectations.