Net profit to mother increased by 3.33% year-on-year in '23, maintaining the “increase in holdings” rating. According to the company's annual report for '23, revenue of 65.577 billion yuan (yoy +31.03%) was achieved in '23; net profit to mother was 516 million yuan (yoy +3.33%). Based on the updated metal price assumption from 24 to the present, we ultimately expect EPS to be 0.69/0.92/1.05 yuan (previous value 0.74/0.87/-yuan). Comparable to the average PE (2024E) value of 19.9X (Wind agreed), the company was given 19.9X PE in 24, corresponding to a target price of 13.77 yuan (previous value 11.90 yuan), maintaining the “gain” rating.
The volume of the gold smelting business has increased significantly, but profitability is under pressure
In '23, the company's gold production/sales volume was 74/74 tons (yoy- +58%/+60%), silver production/sales volume was 952/903 tons (yoy +15%/11%), electrolytic copper production was 200,000 tons (yoy +1.4%), and sulfuric acid production/sales volume was 132/1.13 million tons (yoy -2%/+11%), respectively. The company's gross profit margin in '23 was 2.72% (yoy-1.03pct). The decline was mainly due to the decline in gross profit per ton of the gold smelting business (down from 9.4 yuan/gram to 8.4 yuan/gram) compounded by a year-on-year increase in gold prices. The gross margin fell from 2.46% to 1.87%. In other businesses, the gross margin of electrolytic copper remained flat year on year, the gross margin of silver rose year on year, and the gross margin of sulfuric acid changed from positive to negative. The company's cost control was effective, and the cost ratio decreased by 0.43 pct to 1.49% during the period. Among them, the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio decreased by 0.01pct/0.13pct/0.02pct/0.28pct, respectively.
Actively promote the exploration of gold ore resources. Preparation for asset impairment in 23 years affects profits. The company has been increasing the supply of self-sufficient raw materials through various methods. By the end of '23, the company and its subsidiaries had identified gold resource reserves of 150.38 tons. The main mines in the Muping district of Yantai City, Shandong Province include the Liaoshang Gold Mine, Lazigou Gold Mine, Fuludi Gold Mine, and Dongdongkou Gold Mine.
Among them, the key procedures for the Liaoshang Gold Mine expansion and capacity expansion project have all been approved, and it is expected to be put into operation in '26; the company holds 20.87% of Wanguo Mining's shares, and Wanguo Mining has sold about 1.32 tons of gold in '23, with a net profit of 391 million yuan. In 23, the company raised a total of about 100 million yuan in asset impairment; of these, due to weakening demand, inventory price losses totaled about 0.7 billion yuan due to weakening demand, and the shutdown of the mine under the administration of Qixia Jinxing resulted in an asset impairment of about 10.5279 million yuan.
Gold prices have continued to reach new highs. I am optimistic about investment opportunities in the gold sector in 24 years according to Huatai Macro's “Do Gold Prices Need to Be “Afraid of High Prices”? (2024-3-7), Gold prices continued to rise to new highs in early March, mainly due to rising investors' demand for alternative asset allocation and safe haven.
Combined with the recent FOMC meeting in March, the Federal Reserve's overall statement exceeded expectations, and the price of gold once broke through the 2,200 US dollars/ounce mark on March 21. Various signs indicate that the current market's certainty about the pace and pace of the Fed's interest rate cuts is rising rapidly. At the same time, the recent accelerated rise in gold prices has driven up demand in the gold consumer market, and a positive feedback mechanism for gold prices is being formed. Therefore, we expect that the price of gold will continue to fluctuate upward for a long time. As prices and demand rise simultaneously, we are optimistic about investment opportunities in the gold sector in '24.
Risk warning: The progress of gold mine commissioning fell short of expectations, and the pace at which the Federal Reserve cut interest rates fell short of expectations.