\u3000\u3 Guangdong Shaoneng Group Co.Ltd(000601) 168 Western Mining Co.Ltd(601168) )
Core view
The company’s performance increased by 223% year-on-year in 2021 and 58% year-on-year in 2022q1. In 2021, the annual revenue was 38.401 billion yuan (+ 34.5%), the net profit attributable to the parent company was 2.932 billion yuan (+ 223.0%), the net profit not attributable to the parent company was 2.814 billion yuan (+ 141.3%), and the operating net cash flow was 7.952 billion yuan (+ 142.4%). The company announced the profit distribution plan for 2021 and distributed a cash dividend of 2 yuan for every 10 shares to all shareholders. In the first quarter of 2022, the company achieved a revenue of 8.694 billion yuan (+ 3.6%), a net profit attributable to the parent company of 751 million yuan (+ 58.2%), a net profit not attributable to the parent company of 739 million yuan (+ 55.0%), and an operating net cash flow of 2.517 billion yuan (+ 20.4%).
Due to the high performance of Yulong copper mine project in 2021, the company’s copper output is in the second boom period, which is mainly due to the full release of the performance of Yulong copper mine. In 2021, the company’s copper concentrate output was 124900 tons, with a year-on-year increase of 163%. In 2022, the average annual price of spot copper in China was 68552 yuan / ton, an increase of 40% over 2020. The net profit of Yulong copper, a holding subsidiary, reached 3.146 billion yuan in 2021, a year-on-year increase of 755%. The asset liability ratio declined, and the operating net cash flow increased strongly. With the continuous improvement of profits, the company’s asset liability ratio has continued to decline since 2018. At the end of the first quarter of 2022, the company’s asset liability ratio was 62.4%. The net cash flow generated by the company’s operating activities in 2021 increased by 4.659 billion yuan over the same period of the previous year.
Power salt lake lithium magnesium business. In March 2021, the company purchased 91.40% equity of Western magnesium industry held by western mining group with 563 million yuan; In March 2022, the company acquired 27% equity of Dongtai lithium resources held by west mining group with RMB 3.343 billion, becoming its second largest shareholder, realizing the synergy of magnesium and lithium extraction industry in salt lake. The company extends from the mining, dressing and smelting of solid minerals to the development of salt lake resources, opening up long-term growth space.
Risk of lower than expected metal price release.
Investment advice: maintain the “buy” rating
Since the beginning of the year, the rise of non-ferrous metal prices and the investment income brought by Dongtai lithium resources company have raised the company’s profit forecast. It is estimated that the company’s net profit attributable to the parent company from 2022 to 2024 will be RMB 3.406/36.13/3.779 billion respectively (originally predicted to be RMB 3.297/34.32 / -), with a year-on-year growth rate of 16.1/6.1/4.6%; Diluted EPS = 1.43/1.52/1.59 yuan, and the current share price corresponds to PE = 8.4/7.9/7.5x. Considering that the company is a leading manufacturer of copper, lead and zinc concentrates in China, and the reconstruction and expansion project of Yulong copper mine has successfully reached production capacity, the company’s copper concentrate output has increased significantly since 2021, benefiting from the high business cycle of the copper industry. At the same time, the company has made great efforts in salt lake lithium magnesium resources to open up long-term growth space, and the company’s profit will also be significantly thickened to maintain the “buy” rating.
