<Results Analysis> 2H21 earnings improved despite deteriorated operating results. 

2H21 operating results deteriorated but net profit improved thanks to gains on derivativesJiangxi Copper registered RMB215 bn revenue (+25.9% y o y, -4.8% h o h) and RMB2.3bn operating profit (-14.8% y o y, -43% h o h) in 2H21 based on IFRS. The decline in OP is mainly due to i) sales decline in the copper cathode, ii) sales decline in gold and silver, iii) higher production cost due to low T/C and power shortage in China. Especially low-cost inventory has sold mostly in 1H21 which was the key reason for the significant drop in OP h o h. Despite deteriorated operating results, its net profit in 2H21posted RMB1.6bn(10% y o y, -49.7% h o h) which in in line with our expectation. This was thanks to gains from derivative contracts on commodities and currencies. On a positive note, its sales in copper processing products grew 62% y o y in line with the company’s growth strategy focusing on downstream products. 

The company declared a final dividend of RMB0.50 per share for 2021, which increased 5 folds compared to RMB0.1 for 2020. This is above our expectation and its dividend yield is c 4.6% based on current share prices in HKX.

 2022 earnings to improve thanks to volume growth and higher T/C (Treatment Charges) In 2022, its earnings will improve y o y given i) higher sales volume and price, ii) higher T/C for copper. The company’s 2022 target on operation plan would be a 10% yoy growth in output of copper processing products to 1.8m tonnes and a 30% and 5% yoy increase in gold and silver production respectively.  While copper smelters in China and Freeport determined that the benchmark T/C of copper concentrate in 2022 is S$65/tonne, representing an increase of 9.2% y o y. This will support its FY22 earnings. 

 Positive on strengthening its growth potential along with M&As to downstream and new projectsThe company acquired Tpco copper and Jiangxi cable, downstream copper players in 2021. Tpco has a capacity of 360ktpy of wire rod and 60ktpy of drawn wire. This is part of its strategy to expand and strengthen the copper processing business. In addition, the company would invest RMB12.8Bn in three separate projects over 2022-2028 in Jiangxi: i) adding 30k tonne p.a. of new copper casting materials by the end of 2026, ii) building a new 220k tonne p.a. by the end of 2022, iii) building a 100k tonne p.a. electfoil mill for EV batteries by 2028. This will lead to the group’s earnings growth and rerating of its share prices over the mid to long term. 

Maintain BUY for H share and HOLD for A shareWe maintain our HOLD call and RMB25 TP on A shares and BUY call on H shares and HK$22. Amid concerns on supply disruption of copper concentrates due to the Russia-Ukraine war, its H-share prices have been consolidated and expanded its discount to A share to over 30%. This provides an attractive valuation of FY22F 0.5x P/BV, 6.5x PE, and 6.8x EV/EBITDA compared to peers.  

Jiangxi Copper: 2H22 results summary 

FY Dec (RMB m)1H20202H20201H20212H21% chg yoy % chg hoh
Revenue146,625171,131226,236215,37825.9-4.8
Gross Profit3,1926,87810,3325,860-14.8-43.3
Operating Profit1,4343,5577,2002,324-34.7-67.7
Other Non Opg (Exp)/Inc401-1,178-2,698918-178.0-134.0
Associates & JV Inc39.859.644.9-202.7-440.1-551.5
Net Interest (Exp)/Inc-666-396-479-72583.251.6
Pre-tax Profit1,2092,0434,0682,31413.3-43.1
Tax-403-490-777-61124.7-21.4
Minority Interest-18.9-112.9-137.9-119.05.4-13.7
Net Profit7871,4413,1531,58510.0-49.7
       
       
Margins (%)      
Gross Margins 2.24.04.62.7  
Opg Profit Margins 1.02.13.21.1  
Net Profit Margins 0.81.21.81.1  
       
Revenue (RMBm)      
Copper cathodes81,40785,273122,21798,89616.0-19.1
Copper rod & processing products27,03936,14750,33358,55362.016.3
Gold14,83918,87315,66712,575-33.4-19.7
Silver6,4056,9298,0575,958-14.0-26.1
Sulphuric and sulphuric concentrates3597581,2342,141182.673.6
Copper concentrate, rare and other non-ferrous metals13,84917,42725,32733,86694.333.7
Others2,7275,7243,4013,427-40.10.8
Production volume (k tons)      
Copper cathodes800.6841.9901.3880.94.6-2.3
Copper rod & processing products676.1795.1750.1901.613.420.2
Gold (tons)38.540.138.932.8-18.2-15.6
Silver (tons)544.9581.5614.4509.3-12.4-17.1
Sulphuric acids2,495.92,623.72,634.42,666.71.61.2

Source: Company, DBS HK