Key points of investment

The company's revenue remained stable in 2023, and costs increased. In 2023, the company achieved revenue of 1.28 billion yuan, a year-on-year increase of 3.5%. Net profit to mother was 340 million yuan, a year-on-year decrease of 27.02%, and net profit after deducting non-return to mother was 410 million yuan, a decrease of 12.14% over the previous year. The main reason is a change in the policy for collecting proceeds from mining rights concessions. After recalculation, equity payments are required. At the same time, the company's production of materials used has increased, and the production capacity of subsidiaries has increased after the acquisition.

2024Q1's performance is impressive, and we can look forward to it throughout the year. In 2024 Q1, the company achieved revenue of 299 million yuan, a year-on-year increase of 45.73%; realized net profit attributable to shareholders of listed companies of 808.01 million yuan, an increase of 96.06% over the previous year. The company's sales volume of zinc concentrate from January to January was 14011.79 metal tons and 13627.99 metal tons, respectively, up 48.85% and 38.82%; lead concentrate (containing silver) production and sales volume were 5025.87 metal tons and 5236.43 metal tons, respectively, up 55.57% and 57.44% respectively.

Based on its own production capacity of 1.78 million tons, the Jiangluo region has integrated the construction of 3 million tons of mineral processing.

The company's main business is the mining and trading of non-ferrous metals. It has 4 mining rights and 3 prospecting rights, and has developed an ore extraction capacity of 1.78 million tons/year. The company adheres to a resource-centered business strategy, improving, expanding and strengthening the main lead and zinc business; focusing on integrating the Jiangluo mining area with the Xicheng lead-zinc ore field in the West Qinling Lead-Zinc Metallurgical Belt. At present, construction of the Jiangluo mining area lead-zinc mine (3 million tons/year) beneficiation project has begun, which will further enhance the company's market position in the domestic lead-zinc ore mining industry.

Zinc metal supply showed bottlenecks: in 2023, global zinc concentrate production was 12.83 million tons, down 0.6% year on year. The reasons for the reduction in production were: first, insufficient labor due to workers' strikes; second, extreme weather effects; and third, rising energy prices led to rising mine costs. At the same time, Glencore and Teck reduced zinc ore production in 2026 due to reasons such as the end of the mine's lifespan and the postponement of new projects. Zinc concentrate dropped by about 310,000 tons in 2026 and 70,000 tons in 2027.

Demand for zinc metal continues to be favorable: in 2023, the total global consumption of fine zinc was 13.993 million tons, up 1.1% year on year. According to the 2024 government work report, starting in 2024, it is planned to issue ultra-long-term special treasury bonds for several consecutive years, earmarked for the implementation of major national strategies and security capacity building in key areas. In 2024, 1 trillion yuan will be issued first, and the remaining 500 billion yuan of the 1 trillion yuan treasury bonds issued in 2023 will be carried over. Infrastructure is expected to gain strength again. At the same time, scenery, automobiles, and strong demand for infrastructure in India and Southeast Asia are also expected to drive zinc consumption. The zinc gap begins to open in 2025: we expect a small surplus of 60,000 tons of refined zinc globally in 2024, and a global shortage of 4/24/440,000 tons of refined zinc in 2025-2027, and the gap gradually opens.

Profit forecasting

We expect the company's net profit to be $518/9.39/1,095 million yuan in 2024-2026, corresponding EPS of 0.53/0.96/1.12 yuan, and PE of 24.82/13.69/11.74 times.

First coverage, giving a “buy” rating.

Risk warning:

Raw material prices fluctuated greatly, industry policies changed, project progress fell short of expectations, and downstream demand fell short of expectations.