by winston » Thu Jul 24, 2014 9:28 am
not vested
Encouraging Prelimary Results And Improving Price Outlook; Upgrade To BUY
Zijin waded through a price decline in 1H14 with positive earnings growth, reflecting improving operating performance on the back of cost control, production expansion and product diversification.
Upgrade to BUY on the improving price outlook in 2H14 mainly due to reduced oversupply risks in copper and zinc, strong balance sheet and generous dividend payout. We raise target price to HK$2.25.
WHAT’S NEW
• Zijin announced its 1H14 preliminary results. Revenue declined 7.7% yoy to Rmb24.0b as prices of gold and copper declined 14% and 13% yoy respectively. That said, production and sales volumes of mineral products (mainly gold and copper) increased, which offset
the impact of lower metal prices.
• Operating profit declined 9.2% yoy as production cost rose due mainly to the increase in labour and environmental protection costs as well as an increase in the processing of low-grade ores.
• Net profit attributable to owners of equity shareholders rose 1.3% yoy mainly because of reduced earnings (or increased losses) from minority interests (down 41% yoy to Rmb257m).
ESSENTIALS
• Zijin’s 1H14 net profit is in line with our expectation, accounting for 52% of our full-year forecast and 53% of consensus.
• Zijin stands out among peers (gold-only play) due to its:
a) diversification into copper and Zznc from gold,
b) production and sales volume growth in copper, gold and zinc, and
c) moderate increase in production cost (due to cost control and commission of low-cost mines)
OUTLOOK
• 2H14 earnings will continue to benefit from the above three major factors. Moreover, we think stable gold prices (due to the overhang of geopolitical risks) and copper prices (due to production delays and low exchanges’ inventories) and a strong increase in zinc prices
(due to a shortage) are positive catalysts.
Source: UOBKH
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