UBS released a research report stating that it gave Zijin Mining (02899) a “buy” rating with a target price of HK$14. The company expects net profit after tax to drop 19.2% year-on-year to RMB 10.2 billion in the first half of the year, which is 42% and 43% of the bank and market's annual forecasts of RMB 24.248 billion and RMB 23.813 billion. This means that net profit after tax for the second quarter will be RMB 4.758 billion, down 13% from quarter to quarter.
According to the report, Zijin Mining produced 491,000 tons of copper in the first half of the year, but the equity output corresponding to the Yulong Copper Project in Tibet and the Wancheng Commercial Lead and Zinc Mine Project in Inner Mongolia has been counted. The bank believes that assuming that Yulong production remains the same year on year, copper production of the previous caliber was about 470,000 tons, and production in the second quarter was 19,000 tons less quarterly. However, the Group's Dragon Cage accident reduced the company's copper volume, which may have a slight negative impact on investors.
In terms of copper prices, LME and China's copper prices fell 4.7% and 1.5% respectively in the third quarter. Coupled with a possible decline in sales, the company's copper mining business, including Yulong, is expected to contribute about 890 million yuan less in gross profit next quarter than in the first quarter. Furthermore, the bank said that the price of gold in London rose 4.5% quarterly in the second quarter, and it is estimated that the gross profit contribution of Zijin's gold mining business in the second quarter may be higher than that of the first quarter by about 320 million yuan. As for the 10.4% quarterly decrease in Changjiang zinc prices in the second quarter, it is expected that the gross profit contribution of the company's zinc mining business in the second quarter will be 150 million yuan less than in the first quarter.