occurrences

On August 27, the company released its 24-year report. 1H24 achieved revenue of 30.641 billion yuan, -17.69% year over year; net profit to mother of 0.542 billion yuan, +0.3% year over year; net profit after deducting non-return to mother of 0.518 billion yuan, +2.94% year over year. 2Q24 achieved net profit of 0.303 billion yuan, +26.43% month-on-month and +37.41% year-on-year.

reviews

Volume stabilized and prices increased, and Q2 performance increased month-on-month. 1H24 produced 0.1,395 million tons of concentrated lead and zinc, or 0.424 million tons of copper-lead-zinc series products, +4.10% year-on-year, with a slight year-on-year increase in core product output; the average price of 2Q24 zinc ingots was 0.0236 million/ton, +11.12% month-on-month, and the average price of lead ingots was 0.018 million/ton, +10.88% month-on-month. Against the backdrop of a steady, moderate increase in the company's production and month-on-month price growth, the second-quarter results achieved year-on-month growth.

Domestic mines remain stable, and overseas mines are gradually being released. 1H24's domestic mines produced 0.0817 million tons of lead-zinc ore, -1% year-on-year, and foreign mines produced 0.0578 million tons of lead-zinc ore, +13% year-on-year.

We believe that the main reason for stabilizing domestic production is that the company increased Panlong lead-zinc ore production against the backdrop of a decline in Fankou lead-zinc ore production. However, the year-on-year increase in overseas lead-zinc production was mainly due to a breakthrough in reducing costs due to increased production at Broken Hill.

Lead-zinc smelting and processing costs continued to decline, and the industry responded with production cuts and maintenance. Since 3Q23, domestic lead-zinc concentrate processing costs have continued to decline, leading to a continuous narrowing of lead-zinc smelting profits. Although the zinc concentrate split mechanism and the increase in lead-zinc prices offset some of the effects, they have had a clear impact on smelting profits. According to Anteco, on August 21, the quarterly meeting of the ****nc Raw Materials Joint Negotiation (Coordination) Group (CZSPT) was held in Bayannaoer, Inner Mongolia. In response to the recent situation where zinc smelting and processing costs seriously deviated from the cost affordability of smelters, the participating companies reached agreement on adjusting existing production line maintenance plans in due course, increasing the use of secondary materials, and delaying the time for new production capacity to reach production. In addition, participating companies also carefully and thoroughly discussed topics such as establishing a floor price mechanism for zinc concentrate processing fees. The 14 participating companies have a zinc smelting production capacity of 4.17 million tons, accounting for about 70% of the country's total primary zinc smelting capacity. After the production plan is adjusted, compared with the forecast at the beginning of the year, the demand for zinc ore is expected to be reduced by a total of nearly one million tons of metal throughout the year.

The company's 24-26 revenue is estimated to be 70.6/74.7/74.7 billion yuan, net profit to mother of 1.1/1.11/1.052 billion yuan, EPS 0.29/0.30/0.28 yuan, respectively, and the corresponding PE is 13.82/13.71/14.46 times, respectively. Maintain a “buy” rating.

Risk warning

The release of production capacity fell short of expectations; product prices fluctuated greatly; the risk of RMB exchange rate fluctuations.