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Equity Bottom-Up

Jinchuan Group International Resources / Equity Bottom-Up

Jinchuan Group International Resources (2362 HK)

Jinchuan Group International Resources Co. Ltd. [2362_HK; HK$14.75 billion/US$1.9 billion market cap] &nbsp;revenues should increase from US$665 mn in FY2020 to US$1345 mn in FY2022 at a CAGR of 42% while earnings should increase from a profit of US$31.5 mn in FY2020 to a profit of US$81 mn in FY2022 at a CAGR of 60%. Similarly, the EPS is expected to increase at a CAGR of 60% from US0.24 cents in FY2020 to US0.61 cents in FY2022. We have a 12-month price target of HK$2.00 on the stock, suggesting an upside of 71% from the current levels.
FY2020 Results: Stellar Rise in Gross and Net Profit, Tight Cost Control, Revenues Resilient Amidst pandemic
The gross profit has increased by a whopping 65% from US$53 million in 2019 to US$87.3 million in 2020. Also the company recorded a consolidated net profit of US$42.5 million in FY2020, a growth of 225% as compared to US$13.1 million in FY2019 due to the combined effect of rebound in prices of copper and cobalt, strict cost control measures implemented during the year and reversal in the impairment loss. The company just reported solid, above-expectations FY2020 results with strong margins.&nbsp;
Favorable Supply-Demand Situation; Perennial Demand for Copper and Cobalt
Due to the inherent nature of the properties of Copper and Cobalt, the metals are extensively used in different applications across varied industries. As a result, the global demand for them is expected to remain on the boil for a long time to come. The prices are therefore expected to remain firm (as in the current scenario) going forward to ultimately benefit the mining companies for a long time to come.
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Large Base of High-Quality Resources and Reserves
The company operates two mines in the Central African Copperbelt, namely, the Ruashi copper and cobalt mine and the Kinsenda copper mine in the Democratic Republic of Congo. The company has high quality mineral resources of 4,640 kilo tons of contained copper and 447 kilo tons of contained cobalt at the end of December 2020. The company has mineral reserves of 1,137 kilo tons of contained copper and 200 kilo tons of contained cobalt at the end of December 2020, enough to support 10 years of mining activity with additional ore resources that could extend the mine life to 20 years and beyond.
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Strong Revenue &amp; EPS Growth, Prime Commodity Price Rally Beneficiary&nbsp; 
Jinchuan Group International Resources is a supplier of copper and cobalt operating mines located in Africa. The company operates two mines in the Central African Copperbelt, namely, the Ruashi copper and cobalt mine and the Kinsenda copper mine in the Democratic Republic of Congo (DRC). The company has high quality mineral resources of 4,640 kilo tons of contained copper and 447 kilo tons of contained cobalt at the end of December 2020. The company has mineral reserves of 1,137 kilo tons of contained copper and 200 kilo tons of contained cobalt at the end of December 2020, enough to support 10 years of mining activity with additional ore resources that could extend the mine life to 20 years and beyond. Jinchuan International aims to become a world-class mineral corporation. In addition to the organic growth of the existing operations in Africa, the Company is actively exploring investment opportunities around the globe in strategic projects with great potential in copper, cobalt and nickel. These commodities have high potential created by the rapid development of EV industry and further acquisitions will further enhance the Company's resources base. With ambitious medium and long-term goals set by the company, any further progress towards commercial production would only add to the revenue growth for the company and help sustain growth momentum in the medium to long-term.
Based on our model estimates, revenues should increase from US$665 mn in FY2020 to US$1345 mn in FY2022 at a CAGR of 42% while earnings should increase from a profit of US$31.5 mn in FY2020 to a profit of US$81 mn in FY2022 at a CAGR of 60%. Similarly, the EPS is expected to increase at a CAGR of 60% from US0.24 cents in FY2020 to US0.61 cents in FY2022. With minimal future CAPX requirements, we forecast a FCF of US$116 mn and US$104 mn in FY2021 and FY2022. We would also like to point out that, in our calculations, we take into consideration only the existing resources at company’s operating mines and ignore any potential upside from projects under exploration (project under development stage expected to commence commercial production in 2023 is taken into consideration).
We have a 12-month price target of HK$2.00 on the stock, suggesting an upside of 71% from the current levels. Currently, the stock is trading at a P/E of 33x and 23x on our FY2021 and FY2022 earnings estimates. Similarly, on a P/B basis, the stock is trading at 2.22x and we believe valuations for Jinchuan International Group stock would remain at a premium on account of robust demand for copper and cobalt due to varied usage across multiple industries. Also, the supply-demand dynamics have turned favorable for companies that are mining metals such as copper and cobalt due to increased demand for electronic and electrical components used across multiple industries and structurally constrained supply.
For further details please see our attached Initiation Report.

Jinchuan Group International Resources Co. Ltd. [2362_HK; HK$14.75 billion/US$1.9 billion market cap] &nbsp;revenues should increase from US$665 mn in FY2020 to US$1345 mn in FY2022 at a CAGR of 42% while earnings should increase from a profit of US$31.5 mn in FY2020 to a profit of US$81 mn in FY2022 at a CAGR of 60%. Similarly, the EPS is expected to increase at a CAGR of 60% from US0.24 cents in FY2020 to US0.61 cents in FY2022. We have a 12-month price target of HK$2.00 on the stock, suggesting an upside of 71% from the current levels.
FY2020 Results: Stellar Rise in Gross and Net Profit, Tight Cost Control, Revenues Resilient Amidst pandemic
The gross profit has increased by a whopping 65% from US$53 million in 2019 to US$87.3 million in 2020. Also the company recorded a consolidated net profit of US$42.5 million in FY2020, a growth of 225% as compared to US$13.1 million in FY2019 due to the combined effect of rebound in prices of copper and cobalt, strict cost control measures implemented during the year and reversal in the impairment loss. The company just reported solid, above-expectations FY2020 results with strong margins.&nbsp;
Favorable Supply-Demand Situation; Perennial Demand for Copper and Cobalt
Due to the inherent nature of the properties of Copper and Cobalt, the metals are extensively used in different applications across varied industries. As a result, the global demand for them is expected to remain on the boil for a long time to come. The prices are therefore expected to remain firm (as in the current scenario) going forward to ultimately benefit the mining companies for a long time to come.
&nbsp;

Large Base of High-Quality Resources and Reserves
The company operates two mines in the Central African Copperbelt, namely, the Ruashi copper and cobalt mine and the Kinsenda copper mine in the Democratic Republic of Congo. The company has high quality mineral resources of 4,640 kilo tons of contained copper and 447 kilo tons of contained cobalt at the end of December 2020. The company has mineral reserves of 1,137 kilo tons of contained copper and 200 kilo tons of contained cobalt at the end of December 2020, enough to support 10 years of mining activity with additional ore resources that could extend the mine life to 20 years and beyond.
&nbsp;

Strong Revenue &amp; EPS Growth, Prime Commodity Price Rally Beneficiary&nbsp; 
Jinchuan Group International Resources is a supplier of copper and cobalt operating mines located in Africa. The company operates two mines in the Central African Copperbelt, namely, the Ruashi copper and cobalt mine and the Kinsenda copper mine in the Democratic Republic of Congo (DRC). The company has high quality mineral resources of 4,640 kilo tons of contained copper and 447 kilo tons of contained cobalt at the end of December 2020. The company has mineral reserves of 1,137 kilo tons of contained copper and 200 kilo tons of contained cobalt at the end of December 2020, enough to support 10 years of mining activity with additional ore resources that could extend the mine life to 20 years and beyond. Jinchuan International aims to become a world-class mineral corporation. In addition to the organic growth of the existing operations in Africa, the Company is actively exploring investment opportunities around the globe in strategic projects with great potential in copper, cobalt and nickel. These commodities have high potential created by the rapid development of EV industry and further acquisitions will further enhance the Company's resources base. With ambitious medium and long-term goals set by the company, any further progress towards commercial production would only add to the revenue growth for the company and help sustain growth momentum in the medium to long-term.
Based on our model estimates, revenues should increase from US$665 mn in FY2020 to US$1345 mn in FY2022 at a CAGR of 42% while earnings should increase from a profit of US$31.5 mn in FY2020 to a profit of US$81 mn in FY2022 at a CAGR of 60%. Similarly, the EPS is expected to increase at a CAGR of 60% from US0.24 cents in FY2020 to US0.61 cents in FY2022. With minimal future CAPX requirements, we forecast a FCF of US$116 mn and US$104 mn in FY2021 and FY2022. We would also like to point out that, in our calculations, we take into consideration only the existing resources at company’s operating mines and ignore any potential upside from projects under exploration (project under development stage expected to commence commercial production in 2023 is taken into consideration).
We have a 12-month price target of HK$2.00 on the stock, suggesting an upside of 71% from the current levels. Currently, the stock is trading at a P/E of 33x and 23x on our FY2021 and FY2022 earnings estimates. Similarly, on a P/B basis, the stock is trading at 2.22x and we believe valuations for Jinchuan International Group stock would remain at a premium on account of robust demand for copper and cobalt due to varied usage across multiple industries. Also, the supply-demand dynamics have turned favorable for companies that are mining metals such as copper and cobalt due to increased demand for electronic and electrical components used across multiple industries and structurally constrained supply.
For further details please see our attached Initiation Report.

Jinchuan-HK: Inflection Point, Large Base of Quality Resources, Perennial Demand for Copper & Cobalt