Incident: In 2023, the company achieved revenue of 521,893 billion yuan, a year-on-year increase of 8.74%, net profit to mother of 6.505 billion yuan, an increase of 8.53% year-on-year, after deducting non-net profit of 5.378 billion yuan, or -0.8% year-on-year.
The company's mineral copper production is stable, smelting production is steadily expanding, and profitability has improved. 1) The company's mineral copper production is stable, and smelting products such as copper, gold, silver, and sulfuric acid are growing steadily: in 2023, the company produced 202,000 tons of copper concentrate containing copper, -1.2% year on year, 10,000 tons of molybdenum concentrate, +23.4% year on year; cathode copper sales volume is about 2.1 million tons, +14% year on year, gold sales volume is about 113 tons, +27% year on year, silver sales volume is 1305 tons, +2.2% year on year. Among them, the increase in copper smelting production is mainly due to the commissioning of Jiangtong Guoxing and the release of Jiangtong's production capacity in Qingyuan. 2) The company's profitability has improved: in 2023, the company's gross margin was 2.68%, -0.31pct year on year, but the gross margin of the main trade business fell from 2.72% to 0.13%, while the gross margin of the non-trade business increased from 3.13% to 4.75%. This may be mainly due to the rise in copper prices (most of the company's profit is still mainly contributed by copper ore). The average price of copper in 2023 was about 68,000/ton, +1.9% over the same period; on the other hand, the company's 2023 copper concentrate TC Long Order Benchmark was 88 US dollars/ton , +35% compared to the same period, but factors such as falling prices of sulfuric acid and pressure on the profitability of copper affected the company's profit release to a certain extent. Overall, the company's final net interest rate/ROE in 2023 was 1.34%/9.23%, respectively, +0.07pct/+0.87pct.
The mining side benefited from rising prices, contributed to performance elasticity, and the smelting side continued to expand steadily. 1) The 2024 copper-gold smelting production guide will rise further: the company expects to produce 200,000 tons of copper concentrate, 2.23 million tons of cathode copper, 128 tons of gold, 1,286 tons of silver, 5.97 million tons of sulfuric acid, and 1.97 million tons of copper-processed materials. Among them, copper and gold smelting and copper production will continue to expand. 2) Smelting side profits are affected by the decline in TC or are relatively limited: Although the TC spot price of copper concentrate fell from $90 per ton in 23Q4 to less than 20 US dollars/ton, the company's copper smelting is still mainly based on long orders, and the price is 80 US dollars/ton, so profits are affected or relatively limited. 3) Copper ore will fully contribute to performance flexibility: The company produces about 200,000 tons of copper per year, which is relatively stable. Among them, the main mine, Dexing Copper Mine, is about 150,000 tons, and the cash cost is lower than the industry average. 200,000 tons of self-produced copper mines contribute most of the company's profits, and the company will also enjoy strong enough performance flexibility during the copper price increase cycle.
Profit forecast and investment advice: The company's net profit is expected to be 68.5/77.6/8.35 billion in 2024-2026. Considering that the rise in copper prices or the flexible release of the company's profits will be released, the company is given an “increase in wealth” rating.
Risk warning: Weak demand, fluctuating copper production, profit forecasts and valuation models falling short of expectations.