Record high quarterly results, above our expectation
- Explosive earnings growth in 1Q22 due to strong sales volume growth of mined metals
- Lucrative margins thanks to high metal prices
- 2Q22 earnings to remain on growth path owing to volume growth and strong metal prices
- Retain BUY call for H-and A share with TP of HK$15 and RMB14 respectively
Explosive earnings growth in 1Q22 due to strong sales volume growth of mined metals. Zijin Mining’s revenue and operating profit (OP) came in at RMB64.7bn (+36.4 y-o-y, +15.40% q-o-q) and RMB8.59bn (+78.4% y-o-y, +33.2% q-o-q) in 1Q22. Consequently, net profit in 1Q22 surged 144% y-o-y and 40% q o q to RMB6.12bn, which is the historical record quarterly earnings number and above our expectations. This was largely driven by strong sales volume growth for mined copper (+63.4% y o y)/ mined zinc (+29.5% y o y)/mined gold (+27.2% y o y).
Lucrative margins from higher metal prices. ASP hikes on mined copper (+10.94% y-o-y), refined copper (+13.7% y-o-y), mined zinc (+38.3% y-o-y) bolstered its superior margins. Mined gold/copper/ zinc registered 50.6%/69.2%/59.1% in gross margins in 1Q22, which were also historical records quarterly. Mined copper contributed 68% to total gross profit, followed by mined gold (+22%) and mined zinc(+9%)
2Q22 earnings to remain at comparable highs owing to volume growth and strong metal prices. We expect 2Q22 earnings to remain in the growth trajectory thanks to strong metal prices and production volume growth. LME copper and zinc price is trading above US$10,000/tonne and US$4,000/tonne, respectively, in April, thanks to tight supply with historical low stockpiles in the LME warehouse. While higher energy costs and an delays in supply are pushing up industrial metal prices, precious metals’ (gold and silver) positioning as inflation hedges is also driving their prices higher. For Zijin Mining, the production ramp up in the Kamoa-Kakula copper mine in the DRC, Julong copper mine in Tibet, Cukrau Peki mine, and Bor copper mine in Serbia will bolster its volume growth throughout the rest of the year.
Retain BUY call for H-share and A-share. We maintain our BUY call with HK$15 TP for H-share and RMB14 TP for A-share. Our TP for its A-share is derived from a DCF model using 8.8% WACC and a 3% terminal growth rate. Our TP for its H-share is derived by factoring in a 10% discount to its A-share TP to account for its historical trading discount. Our TP of HK$15 implies a 19x PE and 4.1x P/BV based on the 2022 earnings forecast.
Quarterly Income Statement (RMBm)
Quarterly Segment Breakdown
Source: Company, DBS HK