2023 results fall short of our expectations
The company announced its 2023 results: operating income of 42.4 billion yuan, -18.5% year-on-year, and net profit to mother of 1.41 billion yuan, +4.6% year-on-year. 4Q23 achieved operating income of 8.7 billion yuan, -11.5% year-on-year, and -19.6% month-on-month; net profit to mother was 313 million yuan, up 312 million yuan year-on-year, or -23.2% month-on-month. The lower performance than we expected was mainly due to falling tin and zinc prices.
The sharp drop in the volume and price of tin products dragged down the company's operating performance, and the sharp contraction of asset impairment losses in 2023 supported a year-on-year recovery in overall performance. In terms of price, according to iFind, the average domestic price of tin, zinc, and copper in 2023 was 21.2/2.2/68,000 yuan/ton, respectively, -13%/-14%/+2% compared with the same period last year. In terms of volume, according to the company's announcement, the company's tin, zinc and copper raw metal production in 2023 was 3.2/123/3.1 million tons, respectively, -7%/+17%/-3% compared with the same period last year. In terms of asset impairment, according to the company's announcement, the company's estimated asset impairment losses in 2023 were reduced by 1 billion yuan compared to 2022.
The quality of operations continues to improve, and the dividend ratio continues to grow. In 2023, the company's capital structure was continuously optimized, capital costs were reduced, and the level of return to investors was raised. According to the company's announcement, the company's balance ratio decreased by 3.6 ppt year on year in 2023, our estimated average loan interest rate decreased by 0.5 ppt year on year, and the cash dividend ratio increased 15.7 ppt year on year.
Development trends
Rich resources of tin and indium have established the company's position as the leading tin and indium industries, and production of tin and copper is planned to increase in 2024. According to the announcement, the first is that since 2005, the company's tin production and sales volume has steadily ranked first in the world. In 2023, the company's tin metal domestic market share was 47.92%, +0.14ppt year on year, and the global tin market share was 22.92%, +0.38ppt year on year. Second, the company has the largest reserves of indium resources in the world and is the largest native indium production base in the country. Third, the company plans to produce 8.5/13.16/130,000 tons of tin, zinc and copper products in 2024, +6%/-2%/+0.5% compared with the same period last year.
The improvement in supply and demand in the tin industry is expected to boost the medium- to long-term tin price center, and we are optimistic about the company's profit elasticity brought about by the rise in tin prices. We believe that the rapid growth of photovoltaics, the continued advancement of AI models, and the recovery of the semiconductor cycle are expected to drive up demand for tin. Against the backdrop of supply disruptions in Myanmar and Indonesia, improvements in supply and demand are expected to drive up the tin price center. According to the company's announcement, tin products are the company's largest source of profit. In 2023, tin products accounted for 41.5% of gross profit. We are optimistic about the company's profit elasticity brought about by the rise in tin prices.
Profit forecasting and valuation
The profit forecast for 2024 remains unchanged, and a net profit forecast of 2.36 billion yuan for 2025 was introduced. The current stock price corresponds to a price-earnings ratio of 13/12.2 times 2024/2025. Maintaining an outperforming industry rating, considering that tight supply and demand in the tin industry is expected to raise the medium- to long-term tin price center and the non-ferrous industry is undergoing a comprehensive revaluation, thereby systematically boosting the company's valuation level, we raised the target price by 23% to 21.5 yuan, corresponding to 16/15 times the price-earnings ratio in 2024/2025, with 22.9% upside compared to the current stock price.
risks
Demand for semiconductors fell short of expectations, and overseas tin supply exceeded expectations.