Incidents:
Guocheng Mining released its semi-annual report for 2023. 2023H1 achieved revenue of 550 million yuan/ -36.01%, net profit of 3.538 million yuan/ -97.21%, net profit of non-return net profit of -2.3802 million yuan/ -101.88%.
2023Q2's revenue was 267 million yuan/ -48.18%, net profit attributable to mother - 114 million yuan/ -116.46%, net profit after deducting non-return net profit - 115 million yuan/ -117.73%. The company's business conditions in the first half of the year fell short of market expectations.
Comment:
The company's operating income for the first half of the year was 550 million yuan, a year-on-year decrease of 36.01%. Net profit not attributable to income was mainly due to a decline in sales prices of major products and sales revenue from trade business during the reporting period; the company's performance depended to a large extent on production and sales volume, market prices, and non-ferrous metal selection business costs. Factors such as supply and demand, production capacity and inventory in the non-ferrous metals market all affected the company's business performance. The market price of 2023H1's main products fluctuated greatly, resulting in revenue falling short of market expectations.
Expand production capacity in an orderly manner and improve economies of scale. (1) Lead and zinc: The lead and zinc mining scale is planned to increase from 2 million tons/year to 3.5 million tons/year. (2) Titanium dioxide: The company expects to complete and put into operation a comprehensive resource recycling project with an annual output of 200,000 tons of titanium dioxide, 1 million tons of sulfuric acid, and 1.1 million tons of iron oxide in 2023. (3) Silver: Yubang Mining has resumed production, and the production scale of silver concentrate mining license has been increased from 600,000 tons/year to 8.25 million tons/year.
Invest in Jinxin Mining, set up a lithium ore subsidiary, and enter the upstream new energy industry. The company acquired Guocheng Changqing in 2022 to indirectly hold 48% of the shares in Jinxin Mining, and entered the upstream core field of the new energy industry through the layout of high-quality lithium ore resources. Jinxin Mining has exploration and mining rights for the spodumene mine in Dangba Township. The mine has a Li2O resource reserve of 669,900 tons, with an average grade of 1.33%. In February 2023, the company invested 1 billion yuan to establish a wholly-owned subsidiary, Guocheng Lithium; in June, Guocheng Lithium invested 3.375 billion yuan to build a lithium salt production line with an annual output of 200,000 tons. Relying on rich lithium ore resources and leveraging the advantages of raw material supply guarantee, the company effectively extends the company's lithium battery industry chain, broadens the company's business scope, accelerates the company's strategic layout of the new energy industry, and enhances the company's sustainable development capacity and future development potential.
Demand for lithium ore continues to rise, which is beneficial to enterprise development. The growth rate of new energy vehicles declined in 2023, the momentum on the demand side weakened, and the trend of upstream resource project construction and midstream smelting expansion remained unchanged. Global lithium resources are expected to be in a tight balance in 2025. Currently, uncertainty about overseas policies is intensifying. China's lithium resources are heavily dependent on imports. In order to maintain the autonomy and control of lithium resources, the company's lithium salt supply will increase steadily, which is expected to promote the rapid growth and continuous development of the company's lithium mining business.
Investment suggestions: Considering the gradual commissioning of the company's subsidiaries' production expansion projects, the company's performance is expected to grow rapidly. The company's revenue for 2023-2025 is expected to be 27.73/56.86/7.621 billion yuan respectively, net profit to the mother is 612/8.71/1,252 billion yuan, corresponding EPS is 0.55/0.78/1.12 yuan, and the corresponding PE is 23X/16X/11X, covered for the first time, and given a “increase in holding” rating.
Risk warning: Performance forecasts and valuations fall short of expectations; lithium prices fluctuate, demand falls short of expectations