1. Focus on the lead-zinc-germanium industry for more than 70 years. The company's predecessor, Huize Lead-Zinc Mine, was founded on January 5, 1951. Among them, germanium made outstanding contributions to the successful development of two stars. The company was restructured and established in July 2000, listed and traded on the Shanghai Stock Exchange in April 2004, and officially entered the management sequence of the China Alcoa Group in 2019. The company is a comprehensive mining company focusing on the lead-zinc-germanium industry, integrating geological exploration, mining, beneficiation, smelting, chemicals, deep processing, trade and scientific research.
2. The company's resource endowments have significant advantages, and the certainty of injecting high-quality assets is high. The company has significant resource endowments. As of 2024 H1, the company has a comprehensive production capacity of 0.42 million tons/year for lead-zinc concentrate metals, 0.63 million tons/year for lead-zinc refining, 60 tons/year for germanium products containing germanium, and more than 1,000 tons/year for rare precious metals such as gold, silver, cadmium, bismuth and antimony. There is peer competition between Qinghai Hongxin, Jinding Zinc, Yuntong Zinc, and Chihong Zinc and Germanium, which are owned by China Copper. China Copper promises to resolve competition issues in the industry by injecting assets. In January 2024, Chihong Zinc and Germanium completed the acquisition of 100% of Qinghai Hongxin's shares, and the Group will continue to promote the injection of Jinding Zinc and Yuntong Zinc.
3. Zinc: Production declined slightly for two consecutive years, and demand is expected to bottom up under strong policies. According to USGS statistics, global zinc production in 2023 was 12 million tons, -4.0% year on year. Since production reached 12.7 million tons after 2021, it has declined slightly for two consecutive years. Judging from the downstream demand structure, the terminal zinc consumption structure mainly includes infrastructure, construction, means of transportation, durable consumer goods, machinery, and others. In recent years, global demand for refined zinc has been around 14 million tons. From January to September 2024, global demand for refined zinc was 10.23 million tons, +1.4% year-on-year. With the gradual strengthening of macroeconomic policies, the demand side is expected to bottom up.
4. Lead: Production is relatively stable. The downstream is mainly lead-acid batteries, which have a wide range of applications. Global refined lead production has remained around 1,200 to 13 million tons in recent years. In 2023, China's recycled lead production was 4.63 million tons, accounting for 56% of the total domestic supply of lead concentrate. The recycled lead industry chain is relatively mature. Judging from the downstream demand structure, in 2022, the main downstream of China's primary lead/recycled lead is lead-acid batteries, accounting for about 80% of demand. Lead-acid batteries are mainly used in power batteries, energy storage batteries, backup power batteries, and starter batteries, and the downstream application range is wide.
5. Germanium: Many countries around the world include germanium in the list of key raw materials, mainly used in infrared imagers and other fields. According to USGS statistics, the world's proven germanium resource reserves are 8,600 tons, mainly distributed in the United States, China, Russia and other countries. Due to the scarcity of germanium resources, many countries around the world have protected germanium as a strategic resource.
Germanium has excellent semiconductor properties and high infrared refractive index, and is mainly used in infrared imagers, optical fiber communication materials, solar cells, etc.
6. Profit forecast and investment suggestions: We expect the company's revenue for 2024-2026 to be 22.45/23.86/25.15 billion yuan, respectively, and net profit to mother of 1.86/2.12/2.36 billion yuan, respectively. The corresponding EPS is 0.36/0.42/0.46 yuan/share, respectively. As a leading enterprise in the entire domestic zinc-lead-germanium industry chain, we are optimistic about the company's long-term development trend, covered for the first time, and gave it a “buy” rating.
Risk warning: Risk of large price fluctuations, release from the supply side exceeding expectations, downstream demand falling short of expectations.
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