occurrences
The price of silver in the domestic market hit a new high in nearly 12 years, and the price of silver in the external market hit a new high of nearly three years. The price of gold and silver repaired or drove the price of silver to release greater elasticity. The closing price of the main player of the Bank of Shanghai reached 7,472 yuan/kg on April 12, a record high since October 2012. COMEX silver mainstay reached an intraday high of $29.9 per ounce on April 12, a new high since February 2021. Considering that the correlation coefficient for gold and silver prices in London has reached 90% since January 1968. Going back to 6 rounds of the precious metals bull market, the overall elasticity of silver growth is greater than that of gold. For example, from October 2008 to April 2011, Lunjin rose 83%, and Lunyin increased 309%.
We believe that the essence of this is the strengthening of the industrial properties of silver. As of April 12, the price ratio of gold to silver was 82.65 (COMEX gold price was 2,411 US dollars/ounce, silver price was 29.17 US dollars/ounce as of that date). Compared with the average value of 67.7 since 2000, there is still strong room for repair. This round of silver may release stronger price elasticity.
reviews
Silver became scarce after 2021, and the gap between supply and demand may remain high in 2024. TopCon's accelerated volume is expected to open up new growth space for silver demand. According to the World Silver Association, silver supply and demand became scarce after 2021. Global silver supply and demand in 2022 hit the biggest gap of 7,393 tons since 2013, and the global silver gap was around 4,400 tons in 2023. The World Silver Association1 predicts that although the total global supply of silver may be +2% to 3% in 2024, reaching 31,700 tons, the total demand for silver may reach 36,700 tons, and the gap between supply and demand will still be high, reaching about 5,000 tons. At the same time, TopCon's accelerated volume is expected to open up new growth space for silver demand. According to CICC PV Group estimates, TopCon's share is expected to increase from 25% in 2023 to 60% in 2024, and the demand for silver in PV is expected to increase by 20% year-on-year to 6116 tons in 2024.
In 2023, the amount of silver resources in Yulong Mining, the company's main lead-zinc and silver mine, increased by 17.4%, and the mine's service life is expected to be significantly extended. According to the 2023 announcement, Yulong Mining, the company's main lead-zinc and silver mine, added resources of 1,328.6 tons of silver metals and 10.62/22.5/5.73/0.92 million tons of lead/zinc/copper/tin metals in 2023. Yulong Mining's silver resources in 2022 (100% benchmark) were 6832.49 tons, rising to 8018.82 tons in 2023, +17.4% year-on-year. We believe that based on the company's silver production of 193 tons in 2023, the service life of the company's silver mine is expected to be significantly extended, and the corresponding cash flow period is also expected to be extended.
The profitability of the Yulong lead-zinc and silver mine is strong. We believe that the company may enjoy the profit flexibility brought about by the central rise in silver prices. The company produced 193 tons of mineral silver in 2023. The cost per gram was only 2.34 yuan/gram (after consolidated amortization), and Yulong Mining achieved a net profit of 360 million yuan in 2023. As of April 12, Bank of Shanghai's main force YTD had an average price of 6.15 yuan/gram and a closing price of 7.47 yuan/gram. Compared with the average price of 5.64 yuan/gram in 2023, the company's silver sector is expected to fully enjoy the profit flexibility brought about by the central rise in silver prices.
We maintain outperforming industry ratings and profit forecasts, and maintain a target price of 21.5 yuan. The current stock price corresponds to 2024-2025 28.9x/22.1x P/E, and the target price corresponds to 2024-2025 30x/23x P/E, with 3.6% upside compared to the present.
risks
The price of silver fell short of expectations, and the increase in costs exceeded expectations.