Key points of investment:

Mining Service Family opens up room for growth in resource business volume. The actual controller, Wang Xiancheng's family, grew up in a family of miners. Since its establishment in 1997, the company has been engaged in mining operation management and mine engineering construction. On the basis of maintaining steady development of the mining service business, the company gradually explored a “service+resource” business model with the characteristics of Jin Chengxin to promote the complete transformation of the company from a single mining service enterprise to a grouped mining company.

Mining service operations are growing steadily, and the profit market is basic. The mining services business shows a positive correlation with metal prices. As metal prices rise, mining companies will increase capital expenses. Metal prices have remained high in recent years, and the overall mining services business has grown steadily. (1) Mining supply increased steadily, and as the share of overseas business increased, unit profit grew steadily. Affected by this, the company's mining business revenue and gross profit grew steadily. The 2018-2023 CAGR was 17% and 19%, respectively, with an average gross profit margin of 26%. (2) The excavation business remained basically stable, maintaining about 3.4 million cubic meters all year round. The average gross profit per unit in 2014-2023 was 125 yuan/cubic meter, and the average gross profit margin was 27%, which remained basically stable. As of the 2016 mid-year report, the total amount of major mining service contracts was 12 billion yuan, with an estimated average annual contract amount of 2.8 billion yuan. Judging from the scale of the project, the scale of large owners has risen steadily, customer stickiness and resilience to risks have increased, ensuring the company's basic profit market.

Leveraging mining resources, it has blossomed both domestically and abroad. Relying on the advanced operational advantages of mining services, the company entered into the development of mining resources to ensure high certainty in its operation and profit. (1) Phosphate ore: With the joint development of the Guizhou Liangchahe phosphate project with phosphate fertilizer giants and the release of lithium iron phosphate production capacity, the price is expected to remain high to ensure the certainty of profit. The production cost of the project ton is 155 yuan/ton. Based on the average price, lowest price, highest price, and current price (after tax) from 2019 to the present (first period of 5 years), the net profit after delivery is expected to reach 1.52, 0.28, 3.89, and 374 million yuan, respectively. It is currently in the production capacity release period and is expected to release flexibility in performance after delivery. (2) Copper mine: It has four copper projects in the Congo (Gold) Dikulushi Copper Mine, Lonshi Copper Mine, Zambia's Lubambe Copper Mine, and Colombia's San Matias Copper, Gold Mine, and Silver Mine, all of which produce 0.1114 million tons of copper, 1.51 tons of gold, and 11.18 tons of silver per year after delivery; the equity output is 0.088 million tons of copper, 0.91 tons of gold, and 6.71 tons of silver. The Dikulushi copper mine has reached production, producing 0.01 million tons of copper per year. Based on the average price, lowest price, highest price, and current price from 2019 to the present (five-year period), the net profit of the three mines is estimated to be US$2.04, -0.55, 4.38, and US$342 million, respectively, with net profit from equity of US$1.57, -0.42, 3.35 and US$259 million, respectively. As subsequent mines gradually reach production, the performance of the copper ore sector is expected to be greatly released.

Profit forecast and rating: We expect the company's net profit from 2024-2026 to be 1.463, 2.058, and 2.339 billion yuan, respectively, and the corresponding PE is 17.08X, 12.15X, and 10.69X, respectively. We selected leading companies related to A-shares in the same industry as comparable companies. Using gross margin weighted average calculation, the average PE for 2024-2026 was 22.48X, 18.13X, and 13.65X respectively. The company's 24-26 valuation was lower than the average of comparable companies. Given the relatively high certainty of the company's growth, it has a high margin of safety. Covered for the first time, a “gain” rating was given.

Risk warning. Risk of projects under construction falling short of expectations; risk of metal prices falling beyond expectations; risk of production safety; geopolitical risk.