10 March 2008 Flash Comment

Transcription

1 1 March 28 Flash Comment Zijin Mining (2899.HK) FY7 Result Review Expected Return Rating : BUY Price (7/3/8) : HK$1.8 Target Price : HK$14 Expected Capital Gain : 38.8% Expected Dividend Yield : 2.2% Expected Total Return : 41.% Key Data Stock Code : 2899.HK 12-month High/Low ($) : 14.6/3.671 Hang Seng Index : Issued Shares (m) : 4,5 Market Cap (HK$m) : 4,375 Average Daily Turnover (K) : 49,886 Major shareholders : Xinghang Assets (32.7%) Rel. Performance - 1 month (%) - 3 months (%) - 12 months (%) : : : Chart Investment Highlights A good year in FY7 Zijin Mining announced its encouraging FY7 result with net profit of Rmb 2.55 bn, up 49.72% yoy, which beat our forecast at 45.5% yoy. EPS gained 46.1% to Rmb.19. On revenue side, the co made Rmb 14.8 bn sales in FY7, up 39.3% yoy (vs 32% yoy rise in spot gold price). And gross profit climbed 4.8% to Rmb 3. bn. We noted that the rise in turnover was driven by the rise in production volume, especially gold, up 6.1% yoy to 52,294 kg. A doubt on the margin Regarding gold, ASP of gold bullion rose 8.8% yoy and 4.8% hoh to Rmb / gram or USD / ounce. We see the overall margin of the co slightly improved by.41 ppt to 37.49%. Yet, taking a deeper look into the margin decomposition, margin growth was driven mainly by iron concentrate and copper cathode. According to the management, the drop in gold bullion and gold concentrate profit rate was due mainly to the launch of new mines, which possesses lower grade. Nonetheless, we reiterate our worries over the deteriorating margin under the skyrocketing gold price. We agreed with the management that the 67.86% gross profit margin in gold mining segment is satisfactory enough (vs 53.5% for Zhaojin Mining in FY6 and 57% as per our FY7 estimates), but this proves that the cost inflation remains the major concerns for China mining sector. This also proved our view on the need for an aggressive M&A plan for China gold miner in the near future. FY8 outlook The authorities approve the A-share floatation for Zijin in early months; this proves the green awareness of Zijin is up to the state level. We are happy to see that as environmental pollution problems remains our top concern in China commodity sector. Zijin Mining already received approval on the listing application of the co s A-shares on 26 December 27 from the Issue Review Committee of the China Securities Regulatory Commission. We expect the fund raised from A-share floatation will be put on the M&A plan of the co, which will further boost the metals reserves of the co. Investment opinion: We expect the growing credit crisis and the volatile trading environment in equities markets, average gold price in FY8 will be boosted to USD 95 / ounce. Earning forecast is subjected to update according to the bullish sentiment in spot gold market. Maintain our BUY call on Zijin Gold, with target price HK$14. Create Lee (852) create.lee@cash.com.hk Earnings Estimates Yr-end Dec 25A 26A 27F 28F Net Profit (RMB mn) 74 1,75 2,481 2,67 EPS (RMB) Change (%) PER (x) DPS (RMB) Yield (%) , Celestial Securities estimates

2 Shanghai Gold Price SHGF9995 Comdty SHGF9999 Comdty /3/23 13/6/23 12/9/23 12/12/23 12/3/24 11/6/24 1/9/24 1/12/24 11/3/25 1/6/25 9/12/25 1/3/26 9/6/26 8/9/26 8/12/26 9/3/27 8/6/27 7/9/27 7/12/27 7/3/28 Income Statmenet Snapshot Yr-end Dec 1H6 2H6 FY6 1H7 2H7 FY7 yoy RMB mn RMB mn RMB mn RMB mn RMB mn RMB mn Turnover 3,949 6,73 1,679 6,673 8,198 14, % Cost of sales (2,428) (4,291) (6,719) (4,17) (5,188) (9,295) 38.3% Gross profit 1,521 2,439 3,96 2,566 3,1 5, % Other Income and gains % Selling and distribution costs (38) (15) (143) (11) (145) (255) 78.2% Administrative expenses (194) (224) (418) (229) (379) (68) 45.5% Finance costs (39) (634) (673) (131) (187) (318) -52.7% Other operating costs (254) 139 (115) (22) (91) (293) 154.6% Share of profit of associates % Share of profit of Jointly-controlled entities 18 Profit before tax 1,16 1,763 2,869 2,97 2,335 4, % Tax (213) (298) (511) (454) (458) (912) 78.6% Profit before minority interests 893 1,466 2,359 1,643 1,876 3, % Net profit from ordinary activities attributable to 662 1,43 1,75 1,22 1,35 2, % shareholders Minority interests % Proposed dividend % Earnings per share - basic % Production and Profit Analysis Gold Industry China Zijin Mining % Gold Production (tonne) Gold Metal from Concentrate % Gold EBT (RMB in 1 Million) % Sales and Profit Statistics Sales (RMB,) % of total Revenue % of Net Profit Gold 8,875, Copper 2,288, Zinc 2,774, Others 932, Zijin Mining (2899.HK)

3 Gross Profit Rate Product 27(%) 26(%) % Change Gold (Mining) Gold (Refining) Iron Concentrates Copper Concentrates Copper Cathode Zinc Concentrates Zinc Bullion Total (including refining) Production Volume and Sales Structure Gold Production Copper Production 3, 25, 2, 15, 1, 5, 28,58 27,467 24,827 2,7 Unit: Kg Mining Gold Refinery Gold 12, 1, 8, 6, 4, 2, Unit:Kb 14,62 88,664 Zinc 19% Analysis of Sales Structure Others 6% Gold 12, 1, 8, Zinc Production 114,25 Unit:tonne Copper 15% Gold 6% Copper Zinc Others 6, 4, 2, 41,4 44,963 13,33 Zinc Bullion Mining Zijin Mining (2899.HK) 3

4 Historical Weekly PER Pe Ratio Mean +1SD -1SD /1/25 25/3/25 2/5/25 15/7/25 4/11/25 3/12/25 24/2/26 21/4/26 16/6/26 11/8/26 6/1/26 1/12/26 26/1/27 23/3/27 18/5/27 13/7/27 7/9/27 2/11/27 28/12/27 Historical Weekly P/B Ratio Px To Book Ratio Mean +1SD -1SD /1/25 25/3/25 2/5/25 15/7/25 4/11/25 3/12/25 24/2/26 21/4/26 16/6/26 11/8/26 6/1/26 1/12/26 26/1/27 23/3/27 18/5/27 13/7/27 7/9/27 2/11/27 28/12/27 4 Zijin Mining (2899.HK)

5 Our Rating System Stock Buy Accumulate Hold Reduce Sell Expected to outperform the benchmark index by >15% over the next six months Expected to outperform the benchmark index by 5 15 % over the next six moths Expected to outperform or underperform the benchmark index by <5% over the six months Expected to underperform the benchmark index by 5 15% over the next six months Expected to underperform the benchmark index by >15% over the next six months Industry Outperform Fundamentals/valuations of most stocks in the sector are expected to be improving over the next six months. Marketperform Fundamentals/valuations of most stocks in the sector are expected to be steady, neither improving nor deteriorating, over the next six months. Underperform Fundamentals/valuations of most stocks in the sector are expected to be deteriorating over the next six months. Selective Fundamentals/valuations of the stocks in the sector are expected to be diverging over the next six months. Head Office: 21/F, Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel: (852) Fax: (852) The above information is provided and distributed by Celestial Securities Limited ( CSL ). CSL is a licensed corporation under the Securities and Futures Ordinance. The document is for information purpose only. Neither the information nor opinion expressed shall be construed, expressly or impliedly, as an advice, offer, invitation, advertisement, inducement, recommendation or representation of any kind or form whatsoever. While the information contained herein has been obtained from sources believed to be reliable, CSL or its affiliates ( CASH ) do not represent that it is accurate or complete and it should be relied upon. CASH hereby expressly disclaims all liabilities arising out of or incidental to the accuracy and completeness of the contents and information herein contained. The contents and information in this document will be subject to change without further notice. Trade in securities covered by this report may be made only in those jurisdictions where the securities are qualified for trading. This document may not in whole or in part be reproduced or furnished to any person other than the addressee. Zijin Mining (2899.HK) 5