2024Q1's revenue increased, and net profit to mother surged 124%. In 2024, Q1 achieved revenue of 1,981 billion yuan, +13.94% year-on-month, and net profit of 221 million yuan, +124.30% year-on-year, and -36.63% month-on-month. Q1's net profit to mother increased significantly year-on-year, which is basically in line with our expectations.

The gross margin increased sharply year over year, and the balance ratio declined year over year. The company's gross margin in Q1 2024 was 42.10%, +23.17pct year-on-year, mainly due to rising gold prices. On the cost side, financial expenses, management expenses, and operating expenses for Q1 in 2024 were 93 million yuan/252 million yuan/58 million yuan respectively, a year-on-year change of -18.14%/+8.44%/-26.58%. The cost ratio for the Q1 period was 23.43%, +3.10pct year on year, and the balance ratio was 52.59%, and the year-on-year change was -5.79 pct.

Gross profit growth contributed to increased performance, while other projects remained stable. Looking at the net profit split, in 2024, Q1 company's gross profit increased by 240 million yuan year on year, profit and loss from fair value changes increased by 49 million yuan year on year, profit and loss items from changes in fair value increased by 49 million yuan year on year, profit from investment income decreased by 30 million yuan year on year, profit from income tax expenses decreased by 32 million yuan, and profit from minority shareholders' equity items decreased by 47 million yuan year on year.

Prospecting to increase reserves+epitaxial mergers and acquisitions to continuously enrich resource reserves. Based on continuous exploration of existing mines and joint promotion of epitaxial mergers and acquisitions, the company invested 123 million yuan in geological exploration in 2023, and discovered an additional 33.83 tons of metal. The results were good. Major breakthroughs were achieved in exploration in the main mines of Xiadian Gold Mine, Dayin Gezhuang Gold Mine, and Sabzhuang Gold Mine. At the same time, it accelerated external development, launched a comprehensive contract acquisition with Tietuo Mining, and expanded its resource map. By the end of 2023, the company had 1,185 tons of gold resources and 472 tons of recoverable reserves.

The dual key projects are progressing smoothly, and offshore gold mine development can be expected. The company holds 70% of the shares in the offshore gold mine. The offshore gold mine has now fully entered the fast track of construction. The construction is progressing smoothly. It is expected to be completed and put into operation in 2025. After completion of the project, the expected harvesting scale is 12,000 tons/day, which can contribute 15-20 tons of gold per year after delivery. According to research reports, the total cost of Kejin is only 120 yuan/gram. The mine has excellent profitability. As the largest single gold mine in Asia, future development can be expected.

The price of gold has entered the upward range on the right, and the company is expected to fully benefit. In terms of price, the average daily closing price of the Shanghai Gold Exchange in Q1 2024 was 489.18 yuan/gram. Compared with the same period last year, +16%, the year-on-year change was +4%. Looking at the gold industry, gold prices continued to reach record highs in April, and gold prices remained strong. Currently, the Federal Reserve is in a “transition” range where the interest rate policy changes from interest rate hikes to interest rate cuts. The Federal Reserve's interest rate cut cycle is likely to start within the year. The price of gold is likely to rise and fall easily. In the medium to long term, the position of gold in the asset allocation of central banks around the world continues to rise, and action on gold prices is sufficient. The rise in gold prices is expected to drive an increase in the profitability of the company's unit gold, and the company's performance flexibility is expected to be unleashed.

Profit forecast and investment advice: The company's net profit for 2024-2026 is estimated to be 8.60/14.38/290 billion yuan, respectively, and the PE corresponding to the current stock price is 51/31/15, respectively. Considering the excellent profitability of offshore gold mining projects, the increase in superimposed gold prices will drive an increase in profitability, and maintain the “recommended” rating

Risk warning: risk of gold price fluctuations, risk of production safety, risk of production capacity construction falling short of expectations.