$SD GOLD (01787.HK)$ KGI has a TA target of HKD17.00. Shando...

KGI has a TA target of HKD17.00.

Shandong Gold Mining Co., Ltd. is a China-based company principally engaged in the mining, processing and sales of gold. The Company operates 2 segments. The Gold Mining segment is engaged in the mining of gold ore. The Gold Refining segment is engaged in the production and sales of gold. The Company is also engaged in the distribution of other metals extracted during the gold ore smelting process, such as silver, copper, iron, lead and zinc. The Company conducts its businesses in domestic and overseas markets.

China has discovered a super-large gold deposit, the Xilaokou gold mine in Rushan, East China's Shandong Province, with an estimated reserve of 50 tons, which can be sold for around USD3 b at the current market price. After 8 yeaers of prospecting, the Xilaokou gold mine has become the largest known gold deposit in the region, and the largest discovered in 2023 so far. China has been enlarging its gold reserves and output amid regional geopolitical risks and the global economic downtrend.

The failure of Silicon Valley Bank (SVB) marked the second-largest bank failure in US history. The US Federal Deposit Insurance Corporation (FDIC) seized the assets of Silicon Valley Bank. The bank run is likely to spread to other regional banks in the US. Fears are crowded now, and investors rush to safe-haven assets such as gold and US Treasuries.

The SVB failure is attributable to the aggressive rate hikes throughout 2022, which results in the plunge in US Treasuries (UST) and other government-backed fixed-income securities like mortgage-back securities (MBS). US banks have hugh amounts of unrealised losses from the these holdings as they purchased when interest rates were near zero (fixed-income prices at high). If the Fed fund terminal rate continues to rise, the floating losses will widen further for banks. Banks either raise more capital or sell UST and MBS at losses. In a nut shell, regional banks are facing a liquidity crunch once withdrawals of deposits accelerate. The crisis could force the Fed to slower and smaller rate hikes or even pause. The dollar index fell from near 105.9 to 104.6 as of last Fri.

There are several factors impact gold prices, and the key ones are the trend of the US dollars and global geopolitical risk. The broad market has expected that US dollars peaked last year as inflation has been on a downswing. Even though recent macro data such as Jan CPI and core PCE price were higher than expected, both showed overall prices were declining. The US job market starts showing some weaknesses as unemployment rate rose to 3.6% in Feb. The market expects Fed to cut rates by the end of after the peak in 3Q23. On the other hand, geopolitical tensions remain high and probably escalate anytime as China-US confrontations are more frequent. Gold is the safe haven.

The company expected to realise a net profit attributable to the company of RMB1b to RMB1.3b in FY22 compared to a net loss in FY21.

The updated market consensus of the EPS growth in FY23/24 is 92%/37.5%, respectively, which translates to 28.64x/20.83x forward PE. Current PER is 47.41x. Bloomberg consensus average 12-month tp is HK15.80.