Event: The company released its report for the third quarter of 2024. In 2024, Q1-3 company revenue was 1.102 billion yuan, +30.64% year over year, net profit due to mother 0.35 billion yuan, +43.15% year over year; net profit not attributable to mother was 0.357 billion yuan, + 43.09% year on year. Among them, 2024Q3 had revenue of 0.386 billion yuan, +30.70% YoY, -7.56%; quarterly net profit of 0.136 billion yuan, +46.92% YoY, +1.37% month-on-month; and quarterly net profit of 0.135 billion yuan without return to mother, +47.11% YoY and -4.43% month-on-month.

The lead and zinc price boom led to a sharp year-on-year increase in the company's profits, and production declined in Q3. ① Price: The price of lead and zinc remained high and remained basically flat from month to month. Q3 The price of zinc was 0.0236 million yuan/ton, and the price of lead was 0.018 million yuan/ton, with year-on-year changes of +13.2% and +10.9%, respectively, and +0.3% and -0.4%, respectively. ② Volume: The company's output increased in the first three quarters, but production declined in the third quarter compared to the same period last year. 2024Q1-3, the company produced 0.0452 million tons of zinc concentrate and 0.0156 million tons, respectively, with year-on-year changes of +4.2% and +3.4%, respectively; in 2024Q3, the company produced 0.0145 million tons of zinc concentrate and 0.005 million tons, respectively, with year-on-year changes of -10%, -12.4%, and -11.3%, respectively.

On a year-on-year basis, 2024Q3's net profit to mother increased by 0.043 billion yuan year-on-year. The main reason was the increase in gross profit of 0.065 billion yuan, while profit deductions were mainly expenses and taxes. Among them, the increase in gross profit was mainly due to a sharp increase in the price of the company's main product, lead and zinc, compared to last year, while in terms of expenses, it was mainly due to a large increase in management expenses and financial expenses.

On a month-on-month basis, 2024Q3's net profit to mother increased by 1.83 million yuan, mainly due to a decrease in gross profit of 13.74 million yuan, while profit increases were mainly expenses, taxes and non-operating profit, which were 9.55 million yuan and 8.59 million yuan, respectively. Among them, the decrease in gross profit was mainly due to a month-on-month decline in the company's production, while the expenses were mainly due to a decline in taxes and surcharges, and there were no major non-operating expenses in the current period.

Future highlights: The integration of the Jiangluo mining area will increase production capacity to 4.5 million tons/year, with outstanding growth. The company is actively promoting the integration of the three lead-zinc mines in the Jiangluo mining area. After the integration is completed, the overall mine production capacity will increase from the current 1.78 million tons/year (1.5 million tons in Guojiagou, 0.28 million tons in Jiangluo) to 4.5 million tons/year (1.5 million tons in Guojiagou and 3 million tons in Jiangluo). Lead-zinc metal production is expected to grow rapidly, with outstanding growth

Investment advice: The company is a leading lead and zinc enterprise in Gansu. The Jiangluo mining area will provide significant growth in the future, and the scale of lead and zinc production and sales is expected to continue to grow. We expect the company to achieve net profit of 0.496/0.607/0.868 billion yuan in 2024-2026, and PE corresponding to the closing price on October 24, 2024 is 24/19/13 times, respectively, maintaining the “recommended” rating.

Risk warning: Risk that the project integration progress falls short of expectations, risk of resource reserves, risk of metal price fluctuations, etc.