Revenue increased 133% in 2018, and net profit of 198 million yuan declined year-on-year
The company achieved revenue of 14.138 billion yuan in 2018, an increase of 133.44% over the same period last year; operating expenses of 13.637 billion yuan, an increase of 151.04% over the same period last year; and achieved net profit of 198 million yuan to owners of the parent company, a decrease of 28.77% over the same period last year. Due to the large-scale increase in the company's trade scale in 2018, there was a significant increase in revenue. As LME copper prices fell and production declined slightly, the company's net profit was also affected by the copper business and declined. The company's financial expenses in 2018 were 140 million yuan, an increase of 57.10% over the same period last year. Mainly because during the reporting period, the company completed a number of financing services to meet diversified financing needs, resulting in higher financial expenses compared to the previous year. In the first quarter of 2019, the company achieved operating income of 4.148 billion yuan, an increase of 60.09% over the previous year; net profit attributable to shareholders of listed companies was 43 million yuan, a decrease of 48.37% over the previous year. At the end of the reporting period, the company's total assets were 8.755 billion yuan, total liabilities were 3,283 billion yuan, and the balance ratio was 37.50%.
The profit contribution rate of mineral copper is 99%, reserves are abundant, and varieties are developed in a diversified manner
In 2018, the company produced 33,400 tons of mineral copper, with a gross profit margin of 36%, and the profit contribution of the mining copper business was 99%. The main asset of the copper business at this stage is the Hituru Copper Mine in the Democratic Republic of the Congo (DRC), with reserves that can be mined until 2023. In addition, the company reserves prospecting rights for the PE1078 plot 35km from the current production base, and the resource prospects are promising. In 2019, the company's 3,000-ton cobalt hydroxide production line and South Africa's Oni Gold Mine entered the production period one after another, which will bring new profit growth points to the company. It is expected that the copper business will still account for more than 70% of profits throughout the year, copper ore supply will enter a low point, the industry will enter an upward cycle of boom, and the company's performance will directly benefit from rising copper prices.
The company's net profit in 2019 is estimated to be 363 million yuan, corresponding to EPS of 0.17. Considering that the mineral copper industry has entered a boom cycle, the company's diversified non-ferrous business has begun to gain strength, giving the company 40 times PE, with a target price of 6.8 yuan.
Investment evaluations and recommendations
The company has a mineral copper production capacity of 34,000 tons, a stable gross margin of over 35%, and a profit contribution of 99% in 2018. At this stage, the main business profit contribution comes from the Hituru Copper Mine in the Democratic Republic of the Congo (DRC). Additionally, the company reserves prospecting rights for the PE1078 plot 35km from the current production base, and the resource prospects are promising. In 2019, the company's 3,000-ton cobalt hydroxide production line and South Africa's Oni Gold Mine entered the production period one after another, which will bring new profit growth points to the company. It is expected that the copper business will still account for more than 70% of profits throughout the year. Copper ore supply will enter a low point, the industry will enter an upward cycle of boom, and the company's performance will directly benefit from rising copper prices.
We expect the company's revenue from 2019 to 2021 to be 14.920 billion yuan, 15.417 billion yuan and 16.654 billion yuan respectively, up 5.5%, 3.3% and 8.0% year-on-year; achieving net profit of 363 million yuan, 676 million yuan and 746 million yuan, up 82.7%, 86.4% and 10.3% year-on-year; EPS per share is 0.17 yuan, 0.32 yuan and 0.35 yuan respectively. Net assets per share were $2.73, $3.05, and $3.40, respectively. The corresponding PE from 2019 to 2020 was 32 times, 17.2 times, and 15.6 times, respectively, and PB was 2.0 times, 1.8 times, and 1.6 times, respectively. Considering that the mining and copper industry has entered a boom cycle, the company's diversified non-ferrous business has begun to gain strength, giving the company an increase rating of 40 times PE in 2019, with a target price of 6.8 yuan for 6 months.
Risk analysis
Real estate sales data weakened deeply, dragging down the operating rate of downstream enterprises, and demand in the back-end copper industry fell short of expectations.
The Democratic Republic of the Congo (DRC) introduced strict policies, causing damage to the company's operations.