Key points of investment:
State-owned holdings have taken a new journey and entered the golden circuit. In 2020, the Jinan High-tech Zone State-owned Assets Administration Commission became the actual controller of the company. The company successively passed mergers and acquisitions of projects such as Australia's Pachingo Gold Mine and Loufanggou Vanadium Mine. The business focused on gold and precious metals and new energy minerals, and net profit increased dramatically. According to the company's performance forecast, net profit due to mother will be 39-460 million yuan in 2023, an increase of 33.9-57.9% over the same period last year. The ROE department is at a high level in the same industry.
The high-quality overseas gold mine Pachingo has significant cost reduction and efficiency effects. As of June 30, 2023, the Pachingo gold mining area had 10.988 million tons of ore, 62.86 tons of gold metal, an average grade of 5.8 g/ton, with a processing capacity of 700,000 tons of raw ore/year, and an annual output of 3 tons of gold; the mining cost of the Pachingo gold mine in 2022 was about 314 yuan/gram, and in 2023H1, the utilization rate of equipment increased from 70% to about 90%, and the mineral processing recovery rate increased from 91% to 93%.
The controlling shareholder holds overseas Batok gold claims, and forward injections may be expected. The controlling shareholder holds a claim of 1.21 billion yuan from Tianye Group, the parent company of Batuo Gold. Yulong Co., Ltd. planned to acquire 100% of Batuo Industrial's shares in March 2021, then terminated in April due to changes in the external environment. Currently, it is jointly managed in the form of a service agreement, and forward re-injection may be expected. Batok Gold produces and operates the Southern Cross project in Western Australia. It has 88.2 tons of gold resources, 2.1 million tons/year harvesting capacity, and produced 2.5 tons of gold in 2019.
New energy minerals create new growth. The company acquired 67% of Shaanxi Shanjin's shares in cash and obtained mining rights for the Loufanggou Vanadium Mine Project in Shangnan County, Shaanxi Province. It has 499,900 tons of vanadium pentoxide resources, 660,000 tons/year, and an annual output of 4,814 tons of vanadium pentoxide, which is expected to be put into operation in 2025; it is expected to be put into operation in the Liaoyang Shuangli silica project, which is expected to be put into operation in March 2024 Achieve production.
Profit forecast and investment advice: The company's net profit for 2023-2025 is estimated to be 4.4/6.7/630 million yuan, corresponding to the current share capital EPS of 0.56/0.85/0.81 yuan/share, corresponding to the current PE of 18/12/12, which is significantly lower than the industry average valuation of 41/25/19X. Considering that the company's gold growth is temporarily limited, the company will be given a 20XPE valuation in 2024, corresponding to a target price of 17.01 yuan/share, for the first time coverage, and a “buy” rating.
Risk warning: changes in metal prices fall short of expectations; risk of production safety in mines; progress of projects under construction falls short of expectations