Key points of investment

Huaxi Nonferrous released its 2024 three-quarter report. Net profit for the 24Q3 was 0.192 billion yuan, +88.46% over the same period last year.

The main reason is that the mining rights in the Tongkeng mine were changed to pay equity, which affected the profit scale of 54.5792 million yuan. If the supplementary equity portion is added back, the actual net profit attributable to the mother in Q3 is about 0.247 billion yuan, which is in line with expectations as a whole.

We believe that the increase in Q3 costs is not sustainable, and mining side costs will remain stable in the future. The main reason is that equity is included in related expenses, and there are no related expenses in subsequent quarters.

Mine side metal production continues to increase in 24Q3

The 24Q3 lead and antimony concentrate produced 0.0044 million tons in a single quarter, +38.55% YoY, with a gross profit margin of 80.29% (+15.27% YoY). 24Q1-Q3 produced 0.012 million tons, +20% year over year.

Tin ingot production (including smelting) 24Q3 produced 0.0026 million tons, +14.39% year over year, gross profit margin 36.64% (-10.48% year over year). 24Q1-Q3 produced 0.0077 million tons, +63% YoY. The main reason for the decline in gross profit is that the company increased the amount of tin concentrate extracted from outside.

Zinc concentrate production was 0.014 million tons, +16.63% YoY, with a gross profit margin of 62.47% (+23.23% YoY). 24Q1-Q3 production was 0.0415 million tons, +30% YoY. The main reason for the sharp increase in gross margin of zinc concentrate is an increase in the self-sufficiency rate of raw materials commissioned for processing of zinc ore produced by Fozi, and the increase in gross margin. Lead concentrate production was 0.0023 million tons, +36.21% year over year, with a gross profit margin of 48.94% (+48.94% year over year). 24Q1-Q3 produced 0.0053 million tons, +21% year over year.

24Q3 Average Metal Prices: Strong Metal Prices Boost Performance

Antimony: 0.16 million yuan/ton, +102% YoY, +30% month-on-month. Tin: 0.259 million yuan/ton, +17% year over year, -1.9% month on month.

Lead: 0.0183 million yuan/ton, +13% YoY, +1.5% month-on-month. Zinc: 0.024 million yuan/ton, +11% YoY, +0.5% month-on-month.

The timing of Wuji's injection is gradual, and future progress is being closely monitored. The tin price is awaiting the resumption of production in Myanmar. According to the controlling shareholders' promises, Hechi Wuji is expected to be incorporated into listed companies in the future, which is expected to increase the company's related metal production. The current situation of resuming production in Myanmar is unclear, and there is no consensus on when to resume production. Looking at mine-side supply, there will be no incremental release of supply from large mines in the next few years. We believe that although Myanmar's resumption of production will put pressure on tin prices in the short term, if the subsequent demand side is better than expected, it is expected to fall first and then rise.

Profit forecast:

We expect the company's revenue from 2024 to 2026 to be 4.611/5.463/6.014 billion yuan, respectively, +57.72%/+18.48%/+10.08% year on year, net profit to mother of 0.74/0.784/0.872 billion yuan, and +135.93%/+6.04%/+11.20% year over year, respectively. The corresponding company PE is 15.35, 14.48, and 13.02, respectively, maintaining the “buy” rating.

Risk warning:

Metal prices fell short of expectations, and the progress of asset injection fell short of expectations.