Incident: The company disclosed its 2023 annual report. It achieved annual revenue of 7.221 billion yuan, a year-on-year increase of 15%; achieved net profit of 804 million yuan, a sharp increase of 78%; realized net profit of 866 million yuan without return to mother, a sharp increase of 116% over the previous year; and achieved basic earnings per share of 0.49 yuan/share, a sharp increase of 81% over the previous year. The company's mineral gold production increased steadily, and actively promoted cost reduction and efficiency during the year. The profitability of a single ton of gold production increased markedly. Combined with expectations of interest rate cuts, the gold price moved upward, increasing profits.
Kejin costs improved significantly throughout the year, and production increased at the same time. According to the annual report, the company achieved mineral gold production of 14.35 tons in 2023, up 5.8% year on year; achieved electrolytic copper production of 0.65 million tons, an increase of 0.8% year on year; by sector, the mining industry accounted for 94.5% of revenue, further highlighting the attributes of mining companies. On the cost side, under the full maintenance cost, the company's 2023 mineral gold cost was about 267 yuan, down 12% from the previous year; the annual unit maintenance cost for the two overseas mines Vientiane Mining and Venus Vasa was about 1330/1,197 US dollars/ounce, respectively, down 10%/13% year on year; the annual unit maintenance cost for domestic mines was about 199 yuan/gram, down 27% year on year. During the year, the company's domestic and overseas mines comprehensively optimized costs through centralized procurement, strengthened mining management, and mineral processing technology research.
The construction of core projects is progressing steadily, and continuous expansion of production and cost reduction can be expected. During the year, the company's key construction projects and prospecting projects progressed smoothly. The average daily mineral processing volume of the Wulong Mine plant increased to more than 1,800 tons in the second half of 2023; Geelong Mining's 180,000 tons of gold ore beneficiation expansion project is expected to be completed and tested in June 2024; in addition, the 140,000 tons/year mining and construction project for Xidengping Gold Mine completed all projects and put into production in October 2023, bringing new volume to the domestic gold resources development business.
In terms of prospecting and increasing reserves, 5.3 million tons of gold ore resources were added by the end of 2023, and the increase in resources can be expected.
In a procyclical context, the price center of metal resource products is expected to rise steadily; the company's profitability will continue to be consolidated.
The gold price center can still maintain upward elasticity in anticipation of the Fed's interest rate cut, and the market awaits the substantial implementation of the Fed's monetary policy shift. In the medium to long term, the high interest rate environment may continue to amplify downward pressure on the economy, saving momentum for interest rate cuts; the safe-haven properties of gold as a non-US asset may gradually become prominent when downward economic pressure heats up; in terms of physical gold demand, global central bank holdings are expected to continue to increase, and non-speculative positions support gold prices when easing falls short of expectations or when interest rate cuts move backwards. The company will fully benefit from the upward trend in gold prices under relaxed expectations. Under the comprehensive optimization of Kejin's cost, Kejin's profit growth logic will continue to be realized.
Investment advice: Along with the continuous improvement of the company's cost side and the continuous release of the increase in new construction projects, the mineral gold business is expected to achieve a “double increase” in unit profit and production; combined with the imminent interest rate cut by the Federal Reserve and the continuing emphasis on the safe-haven nature of gold, the gold price center is expected to continue to rise. We expect that in 2024-2026, the company will achieve operating income of 77.6/84.2/9.04 billion yuan, and realized net profit of 11.5/14.8/1.63 billion yuan respectively, corresponding PE levels of 23.7/18.3/16.7 times, respectively, to maintain the company's “buy” rating.
Risk warning: geopolitical risk, risk that the Fed's interest rate cut falls short of expectations, project commissioning falls short of expectations, etc.