Introduction to this report:
The second phase of the company's copper has been postponed, but the installation and commissioning of the first crusher has been completed and has entered the trial production stage. Later, with the gradual commissioning of the second phase of copper and the gradual release of high-grade copper ore, the company's copper sector's profit will increase significantly.
Key points of investment:
Maintain an “Overweight” rating. Net profit for 2023 and 24Q1 was 9.12 million yuan or 240 million yuan, up 36.95% and 27.94% year-on-year, in line with expectations. Considering the schedule extension for the second phase of copper, the 2024-2025 net profit forecast was lowered by 1,048/1,129 billion yuan (originally 1,745/2,277 billion yuan), and the 2026 net profit forecast was added by 12.01 yuan, corresponding to EPS 1.61/1.73/1.84 yuan. Referring to comparable company valuations, the 2024 PE valuation was given 13 times, the target price was raised by 20.88 yuan (previously 18.68 yuan), and the “gain” rating was maintained.
Copper Phase II is expected to be gradually put into operation, which will contribute a large increase in performance. The first phase of the company's copper is close to closure. Copper production is low and the grade is low, affecting the profitability of the copper business: in 2023, the company sold 23,800 tons of copper products, and the gross profit margin was -5.06%. According to the company's 2023 annual report, in 2023, the company's copper phase II crusher was put into use and commissioning was completed. In 2024, the company will continue to promote equipment installation and commissioning, personnel training, etc., to increase the volume of copper mining in Phase II. The company's copper smelting design capacity is about 80,000 tons per year. Later, with the gradual commissioning of the second phase of copper and the gradual release of high-grade copper ore, the company's copper sector's profit will increase significantly.
The company's magnetite has a cost advantage and is still the company's main source of performance. On the one hand, the company's magnetite is a ground mine stored in history. Early mining and mineral processing costs have all been included in the production costs of copper products, so there are no mining or initial beneficiation costs; on the other hand, its magnetite grade is high, and only simple separation is required to improve the grade for foreign sales, so subsequent mineral processing costs are relatively low. The company's high-grade magnetite production capacity is 8 million tons/year, which is still the company's main source of performance.
Actively expand vermiculite applications, and there is still room for improvement in sector performance. In recent years, the company's vermiculite production and sales scale has stabilized at around 170,000 tons/year, and revenue has stabilized at 3-4 billion yuan/year. The company is actively cooperating with scientific research institutes to expand the application field of vermiculite, and there is still room for improvement in the production and sales scale and profit of its vermiculite sector.
Risk warning: The second phase of copper production has been delayed, and local logistics transportation in South Africa has been blocked.