Event: The company publishes its 2024 mid-year report. The company released its 2024 mid-year report. In 2024 H1, the company achieved revenue of 0.716 billion yuan, a year-on-year increase of 30.6%, net profit to mother of 0.214 billion yuan, a year-on-year increase of 40.86%, after deducting non-return net profit of 0.222 billion yuan, an increase of 40.75% year-on-year. With 2024Q2, the company achieved revenue of 0.418 billion yuan, a year-on-year increase of 21.56%, a year-on-year increase of 39.64% over 24Q1, a net profit of 0.134 billion yuan, a year-on-year increase of 20.38%, and an increase of 65.39% over 24Q1; realized net profit withheld from non-return mother of 0.141 billion yuan, an increase of 21.5% year-on-year and 75.94% month-on-month increase over 24Q1.

The sharp rise in the volume and price of lead and zinc contributed to a sharp increase in Q2 results. Volume: 2024H1. The company's zinc concentrate and lead concentrate (containing silver) production were 30,659.64 and 10,636.12 metal tons respectively, up 12.54% and 12.94% from 2023H1 production respectively. On the one hand, the increase in the company's production stemmed from the increase in the acquisition of the Xiejiagou and Xiangyangshan mines, and on the other hand, from restorative growth under abnormal production conditions in 23Q1. 2024Q2, the company's production of zinc concentrate and lead concentrate (containing silver) was 16647.85 and 5610.25 metal tons, respectively, up 18.8% and 11.6% from 2024Q1, respectively, and down 6.6%/9.3% from 2023Q2, respectively. Price:

The price of 2024H1 lead and zinc increased significantly. Among them, the price increase in the second quarter was even more significant, driving a sharp increase in performance.

According to SMM, the price increase of 2024H1 zinc was 12.62%; the price increase of 2024H1 lead was 21.97%. Cost: There has been a slight increase in costs. According to the report estimates, the unit costs of 24H1's zinc concentrate and lead concentrate (containing silver) were 6840 and 7024 yuan/ton of metal, respectively. The concentrate cost was comparable to the full year of '23, with changes of 145 yuan/ton of metal and -31 yuan/ton of metal, respectively.

Financial expenses increased significantly, and operating expenses increased a lot in the first half of the year. In 2024, H1 Company's sales, management, and financial expenses were 0.51/81.84/43.59 million yuan, up 14.93%, and 76.60%, respectively. The management expense ratio and sales expense ratio were basically stable, and the financial expense ratio increased. The main reason was the increase in interest expenses due to the increase in the company's loans during the reporting period. Judging from the 24Q2 performance, the company's sales, management and financial expenses were 0.25/44.49/22.34 million yuan respectively, which was basically the same as 24Q1; financial expenses increased 93.37% month-on-month in 23Q2, which was a significant increase, mainly due to an increase in borrowing. In terms of cash flow, the company's net operating cash flow is outstanding. Every year, the net operating cash flow is higher than the current net profit level. 24H1, the company's net operating cash flow was 0.296 billion yuan, up 5.3% year on year, accounting for a decline of 41.32%. This is mainly due to the increase in the company's revenue due to rising commodity prices, and on the other hand, it is mainly due to the increase in the company's operating expenses

Future highlights: The integration of the Jiangluo mining area will increase production capacity to 4.5 million tons/year, with outstanding growth. The company is actively promoting the integration of the three lead-zinc mines in the Jiangluo mining area. After the integration is completed, the overall mine production capacity will increase from the current 1.78 million tons/year (1.5 million tons in Guojiagou, 0.28 million tons in Jiangluo) to 4.5 million tons/year (1.5 million tons in Guojiagou and 3 million tons in Jiangluo). Lead-zinc metal production is expected to grow rapidly and growth is outstanding.

Investment advice: The company is a leading lead and zinc enterprise in Gansu. The Jiangluo mining area will provide significant growth in the future, and the scale of lead and zinc production and sales is expected to continue to grow. We expect the company to achieve net profit of 0.497/0.608/0.868 billion yuan in 2024-2026. The PE corresponding to the closing price on August 19, 2024 is 22/18/13 times, respectively, covered for the first time, and given a “recommended” rating.

Risk warning: Risk that the project integration progress falls short of expectations, risk of resource reserves, risk of metal price fluctuations, etc.