Incident: Hegang Resources released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 5.867 billion yuan, an increase of 16.1% over the previous year; net profit attributable to shareholders of listed companies was 912 million yuan, an increase of 36.95% over the previous year. In the first quarter of 2024, the company achieved operating income of 1,611 billion yuan, an increase of 41.36% year on year; net profit attributable to shareholders of listed companies was 240 million yuan, an increase of 27.94% year on year.
Comment:
With multiple measures in parallel, the company made every effort to ensure the growth of shipment volume and performance. In the first half of 2023, South Africa entered a state of national disaster twice due to severe floods and power shortages. The impact of floods and power restrictions on infrastructure such as railways, highways, and ports posed a major challenge for the company to improve shipping. The company made up for shipping losses by shortening the loading time in the factory area, increasing train turnover, and increasing vehicle traffic volume. The implementation of relevant measures achieved remarkable results. Shipments began to pick up in June, and shipments in the second half of the year increased by about 1 million tons compared to the first half of the year. At the same time, the company had a small price difference between high and low grade iron ore. By further optimizing the product structure and increasing sales of low-grade ore, the company's performance grew steadily when the average annual mineral price declined. In 2023, the company produced 24,000 tons of copper and sold 23,700 tons; magnetite produced 5.8217 million tons, sold 6.794,400 tons; produced 1691 million tons of vermiculite and sold 1312,000 tons.
The company has rich mineral resource reserves and excellent quality. The second phase of the copper project has already been partially put into operation. The company's magnetite is a companion product isolated during copper ore processing. After decades of copper ore production, about 130 million tons of magnetite are currently stored on the ground, with an average grade of 58%. Meanwhile, underground production will add magnetite products every year. PC requires only simple magnetic separation of magnetite to raise the magnetite grade to 62.5% to 64.5%. In terms of magnetite production costs, it has great advantages compared to domestic and foreign iron mines, and will contribute stable profits to the company. In 2023, the company's copper phase II project was affected by social factors, and the overall construction progress slowed down, but 5 #破碎机已经投入使用，调试也基本完成，进入部分投产状态。 After the second phase of the copper project is put into operation, the copper mine production and operation period can continue for 15 years. This will continue to ensure the market influence and industry position of PC in South Africa's copper products and provide a stable profit guarantee for the company.
Investment recommendations and ratings: In 2024-2026, the company's revenue is expected to be 69.56/82.29/9.097 billion yuan, and net profit to mother is 1,234/15.47/1,659 billion yuan, respectively. Considering that the company's magnetite reserves are large, the grade is high, the production cost is low, and that the company's profitability will further increase after the second phase of the copper project is fully put into operation, the company was given a “buy” rating.
Risk warning: the risk that global steel production falls short of expectations, leading to insufficient demand for iron ore; the risk that the company's shipping capacity falls short of expectations; the risk that the progress of the Phase II copper project falls short of expectations; the risk that performance forecasts and valuation judgments fall short of expectations.