Key points of investment:
Gold to Copper Bonds (113068.SH):
AA+, bond balance of 1.45 billion yuan, remaining term 5.17 years. The latest closing price was 114.70 yuan, the conversion premium rate was 21.54%, the pure bond premium rate was 15.82%, and YTM -0.39%.
Original stock: Jintian Shares (601609.SH):
The total market value is 9.4 billion yuan; it is one of the largest copper processing enterprises in China, integrating the smelting, processing and deep processing of recycled copper. Q124's revenue was 24.8 billion yuan, +3.4% year over year; net profit to mother was 109 million yuan, +28.9% year over year.
The current stock price corresponds to PE TTM 17.1x and PB LF 1.19x.
The main highlights of the gold-copper bond conversion:
Both are at the top of investment-grade debt conversions. The market price of gold and copper, the share conversion premium rate, and the pure bond premium rate are not high.
Among investment-grade bonds, the low ratio of gold to copper bonds is only higher than a few individual bonds such as banks and pig cycles. Combined with the shares of PE and PB shares over the past 3 years, the valuation appeal of gold-copper conversion bonds is obvious.
The rise in copper prices may have passed a phased high, and the strongest impact has passed. COMEX copper has risen 24% (peak 36%) since March this year. As copper prices skyrocketed, on the one hand, copper processing companies increased procurement costs; on the other hand, cost-sensitive customers such as electricity and consumer electronics delayed placing orders; at the same time, hedging still required continuous additional security deposits. There is a phenomenon in the industry where the capital chain of individual enterprises is tight and the price of copper bars is lower than that of the raw material cathode copper. Since late May, international copper prices have pulled back, and we think the phase high has passed.
Steady operations, large financing space, or benefit from industry concentration. Jintian's total assets are close to 26 billion yuan, and the restricted assets (related to security deposits and pledge collateral) are only 422 million; the actual controller holds zero pledges; all interest-bearing liabilities divided by bonds are bank loans, with an average interest rate of 3.5%. The bank's approval is high, and there is plenty of room for financing.
Copper prices have skyrocketed in this round. If small and medium-sized enterprises clear out in large numbers, the company may benefit from increased industry concentration.
The peak of capital expenditure has passed, and profitability continues to recover. Since 2020, the company's production capacity has expanded from 1.3 million tons to 2.1 million tons. Self-built production capacity revenue recovery period is longer, and the drastic expansion of production has dragged down ROIC. At present, the peak of the company's capital expenditure has passed. In the future, as production capacity and three fees stabilize, we expect the company's profitability to continue to increase and ROE to rise to more than 10% with high turnover operating capacity.
Reasonable valuation derivation and investment suggestions for debt conversion
Based on the valuation model of Mountain Securities convertible bonds, assuming that the underlying stock price remains unchanged, we believe that a reasonable valuation of gold-copper convertible bonds is 112-120 yuan. We believe that the gold-copper bond conversion is the preferred target for the double low strategy. At the same time, along with the fall in copper prices, the original stock valuation is also expected to recover.
Risk warning: Copper prices fluctuate greatly, market competition intensifies, downstream demand falls short of expectations, etc.