Net profit for 2020 was about 366 million yuan, up 19.89% year on year. According to the company's 20-year annual report, we achieved revenue of 36.053 billion yuan, up 26.34% year on year; realized net profit of 366 million yuan, up 19.89% year on year, lower than our previous expectations of 8.3%; the increase in performance was mainly due to increases in output and prices. We are optimistic that the company's future production of mining and smelting products will increase. We expect the company's EPS to be 0.45/0.58/0.64 yuan respectively in 21-23, maintaining the “increase in holdings” rating.
The company has formed a comprehensive recycling system for 50 tons of gold smelting
Focusing on the main line of gold smelting and comprehensive utilization of non-ferrous metals, the company has built 3 pyrometallurgical system production lines based on internationally leading complex ore processing technology. The company has established a complete ore procurement system at home and abroad in small quantities of raw materials from its own mines, mostly purchased from outside sources. At present, it has the capacity to produce 50 tons of gold, 1,000 tons of silver, 250,000 tons of electrolytic copper, and 1.3 million tons of sulfuric acid per year. It can also comprehensively recover rare metals such as antimony white, bismuth ingots, tellurium ingots, selenium dioxide, and metallic arsenic. At the same time, Weihai Hengbang Chemical, a wholly-owned subsidiary of the company, produces various fertilizers such as ammonium phosphate and compound fertilizer and is exported at home and abroad.
The company's gold and other production increased in 20 years, and the company's “endogenous extension” was combined with the “three-year innovation and multiplication action of Jiangtong Group” as an opportunity to firmly position itself in the precious metal mine development, smelting and comprehensive utilization of resources. In '20, the company smelted about 25.8 tons/801.5 tons/154,000 tons of gold/silver/copper, an increase of about 49.62%/31.15%/30% over the previous year in '19; SHF gold/silver/copper prices rose 23.7%/20.4%/2.3% year on year. In '21, the company will focus on speeding up the “Liaoshang Gold Mine Expansion and Capacity Expansion Mining and Selection Construction Project”. The company completed the 20.87% equity acquisition of Wanguo Mining (03939HK) by 21.3.9; Wanguo Mining is a Hong Kong-listed company that mainly produces copper, gold, zinc and other products, with a net profit of about 56 million yuan in '19.
The copper industry is expected to improve in '21, and maintaining the US monetary easing policy will benefit the price of gold. According to 21.1 “Continuation of the pattern of shortage of copper supply and demand in 21-22", based on ICSG, we believe that copper will continue to be in short supply in '21. Furthermore, according to the bitmap of the Federal Reserve's March 17 meeting, Fed officials expect that monetary policy will not change in '21, and that interest rates will remain close to zero until the end of '23; as inflation expectations gradually rise, we expect the price of gold to remain strong.
Relying on Jiangtong Group to vigorously develop the gold business, maintain the “increase in holdings” rating and optimistic expectations for the US economy, which has led to a recent rise in US bond yields, which has suppressed the price of gold. Due to conservative considerations, we lowered our 22 year price expectations (360 yuan/gram, previous value 400 yuan/gram), and raised raw material procurement discounts in light of the sharp rise in copper prices. We expect revenue of $452.23/460.92/51,451 billion yuan for 21-23 and net profit of $520/666/731 million (down 25.3%/29.7% /- from previous value). In '21, comparable company Wind unanimously anticipated an average PE value of 26.4X. Given that the company, as a precious metals development platform for Jiangtong Group, had great potential for growth and offered a 10% valuation premium, 291XPE was given according to EPS in '21. The corresponding target price was 13.09 yuan (previous value of 21.12-22 yuan), maintaining the “increase in holdings” rating.
Risk warning: The tightening of monetary policy has led to a decline in commodity prices. Environmental protection and other policies have led to a decline in production.