Core views:
Highly flexible alpha targets are optimistic about both profit and valuation recovery. The cost of the company's mineral gold is on the right side of the “cost-production” curve. When the price of gold rises, the elasticity of the company's performance (Kirkley profit) will be much higher than the elasticity of the gold price. Due to the high elasticity brought about by rising gold prices+volume growth expectations and the right side of the cost curve, we believe that the company's profit and valuation are expected to recover.
Production is at the forefront of the industry, and volume growth is expected. The company's mineral gold production is expected to continue to increase due to the increase in the recovery rate of Sepon copper and gold mine, the 3.3 million ton expansion of Jinxing Wasa mining (24M6 is expected to be put into operation), and the increase in mining capacity of Wulong Mining to meet plant selection needs. We expect the company's mineral gold production to be 15.7/17.6/18.6 tons in 24/25/26, respectively, and the corresponding equity output is 12.6/14.3/15.3 tons, respectively, up 10.4%/13.3%/6.7% year on year.
Domestic gold mining costs are leading, and overseas management is improving, reducing costs and increasing efficiency. The sales cost of mineral gold in '23 was 280 yuan/gram, of which in China, Vientiane Mining, and Jinxing Vasa were 153, 340, and 300 yuan/gram respectively. We expect that the domestic gold mine is of high grade, and the cost advantage is expected to continue; the cost increase of Venus Vasa due to uncontrollable factors such as the flood disaster in '23 is unsustainable; and the company's overall mineral gold sales costs may be relatively stable in the future. At the same time, the company's efforts to reduce costs and control fees were obvious. The four-year rate in '23 was 9.79%, down 1.56 PCT from '19, and continued to decline for four consecutive years.
There is room for improvement in gold expectations and valuations. We believe that US inflation is sticky, or suppresses the price of gold to a certain extent, but expectations of interest rate cuts have not changed, and there is still room for continued improvement in expectations and valuations.
Profit forecasting and investment advice. In 24/25/26, the company's net profit is estimated to be 16.4/18.2/1.92 billion yuan, respectively, up 104%/11%/5% year-on-year, and the corresponding EPS is 0.98/1.10/1.15 yuan/share, respectively. According to the latest closing price, the corresponding PE is 18.2/16.4/15.6 times, respectively. Gold prices are still gaining momentum. The company is a highly elastic gold leader. We think it is reasonable to give the company a 24-year 28 PE valuation. The reasonable value of the corresponding company's A shares is 27.58 yuan/share, covering the first time, giving the company a “buy” rating.
Risk warning. Risk of fluctuations in gold prices and exchange rates; risk of rising costs; risk of production falling short of expectations.