Key points of investment:
The company released its 2023 annual report and 2024 quarterly report, and the performance was in line with market expectations. In 2023, the company achieved revenue of 5.867 billion yuan, up 16.1% year on year, net profit to mother of 912 million yuan, up 36.95% year on year; 23Q4 achieved net profit of 246 million yuan, down 2.92% year on year and 14.06% month on month; 24Q1 achieved net profit of 240 million yuan, up 27.94% year on year and down 2.28% month on month.
Prices in the iron ore sector rose and fell, and overall profit increased. In 2023, the company's magnetite sales volume was 6.79 million tons, down 10.89% year on year, mainly due to South African floods and power restrictions interfering with infrastructure such as railways, highways, and ports in the first half of the year, causing iron ore shipments to fall; the price price was about 620 yuan/ton, up 32.4% year on year, mainly due to the high level of iron ore production in 23, which led to a rise of 71.39% year on year; gross profit level of about 510 yuan/ton, up 26.24% year on year; gross profit level increased by 71.39% year on year; gross profit level increased by about 510 yuan/ton, up 26.24% year on year..
The current profit in the copper sector is poor, and the focus is on the increase brought about by the subsequent phase II mining operation. In 2023, the company sold 23,800 tons of copper, up 6.02% year on year; gross margin was -5.68%, mainly due to poor copper ore grade in the first phase of the project. According to the company's announcement, the Copper Phase II No. 5 crusher has now been put into use, and the commissioning has basically been completed. It is partially put into operation, and the copper business may contribute to a certain increase in 2024.
Sales expenses have declined, and overall expenses have declined during the period. In 2023, the company's total expenses for the period amounted to 1,841 billion yuan, a year-on-year decrease of 7.43%. Among them, management expenses were 567 million yuan, an increase of 18.67% year on year, mainly due to an increase in employee remuneration and labor service fees; sales expenses of 1,555 million yuan, a year-on-year decrease of 6.13%; financial expenses were -281 million yuan, a year-on-year change of -135 million yuan, mainly due to an increase in interest income; the company had no R&D expenses during the period, with no change from year to year.
Investment analysis: The company's iron ore costs are low, and the iron ore sector is expected to contribute steadily to profits; at the same time, copper sales are expected to continue to grow after the second phase of the mine is put into operation, and the copper sector's performance is growing at a high rate. Considering that it will take some time for the company's second-phase copper mine production capacity to rise, we lowered the company's 2024/2025 copper mine sales forecast from 5/70,000 tons to 3/50,000 tons, lowered the company's 2024/2025 net profit forecast to 10.98/1,232 billion yuan (the original forecast was 12.1,512/31 billion yuan), and added the 2026 net profit forecast of 1,456 billion yuan, corresponding to PE 11 times, 10 times and 9 times, respectively. The company's iron ore business is comparable to Dazhong Mining and Jinling Mining. The copper business is comparable to Jiangxi Copper and Yunnan Copper. The average PE of the comparable company in 24-26 was 14, 13, and 12 times, respectively, so the company's valuation was lower and maintained a “gain” rating.
Risk warning: downstream demand falls short of expectations, copper and iron ore prices fall; turbulence in the South African region may cause the risk that copper production will fall short of expectations; and shipping costs will rise.