3Q24 results beat our expectations

Western Mining announced its 3Q24 results: In 1-3Q24, revenue rose 14% YoY to Rmb36.7bn and net profit attributable to shareholders grew 24% YoY to Rmb2.73bn. In 3Q24, revenue rose 23% YoY to Rmb11.7bn (down 16% QoQ) and attributable net profit grew 61% YoY and 26% QoQ to Rmb1.11bn. The company's results beat our expectations, as the copper output of the Yulong project exceeded the planned production volume.

Production volume of the Yulong project increased after the company upgraded technologies of two beneficiation plants; full- year copper output of the Yulong project will likely exceed the planned production volume, thanks to a higher recycling ratio.

According to corporate filings, two beneficiation plants of the Yulong project started production after the company upgraded its technologies in November 2023, with the annual iron treatment capability rising by 15%. We estimate that the copper output of the Yulong project increased by 58% YoY and 10% QoQ in 3Q24 to approximately 46,977t, based on the attributable production volume of copper output of the Xizang Yulong copper mine (Zijin Mining data).

Western Mining continues to improve production technologies and enhance efficiency. It increases the recycling ratio of the main production process through extending the period of time for flotation in the No.1 workshop of its beneficiation plant. According to the company, the recycling ratio of copper increased by 2.31% after it upgraded technologies in July 20241. We estimate that the copper output of the Yulong project reached approximately 0.13mnt in 1- 3Q24, representing more than 85% of the planned copper production volume for 2024. We think the full-year copper output of the Yulong project will likely exceed the planned production volume in 2024.

GM dropped QoQ in 3Q24, due to QoQ declines in copper prices. iFinD data shows that the average prices of copper, lead, and zinc in China increased by 10%, 11%, and 13% YoY in 3Q24, vs. QoQ changes of -6%, -0.4%, and +0.3%. As a result, the company's gross profit (not　excluding taxes and surcharges) increased by 28% YoY and fell 8% QoQ in 3Q24.

Attributable net profit increased QoQ in 3Q24, thanks to higher net investment income, lower asset impairment losses, and lower non- operating expenses. According to corporate filings, the company's net investment income increased by Rmb0.3bn QoQ, asset impairment losses dropped by about Rmb242mn QoQ, and non-operating expenses fell by around Rmb175mn QoQ, as the company offset the negative impact of previous unrealized losses of hedging and it did not have substantial impairments, fines, and damages for breach of contract in 3Q24.

Trends to watch

Major projects proceed smoothly; high-quality development ahead. According to corporate filings, the company is advancing work related to the procedures for the Yulong Copper Mine Phase III project. The company has compiled related reports (such as the Phase III Project Development and Usage Plan) and received reviewer comments. We estimate that the company's annual attributable production capacity of copper concentrates will increase by more than 30% after the launch of the Yulong Phase III project, compared to the level prior to the rollout of the project.

The company's several smelting projects2 have started trial production after upgrading technologies. The company expects 2024 to be a year of high-quality development and management improvement, and it continues to implement its resource expansion and refined smelting management strategies.

Financials and valuation

We lift our net profit forecasts 12% to Rmb3.7bn for 2024 and 10% to Rmb4.4bn for 2025, as we raise our copper output forecast for the company given its sustained efforts to improve technologies and enhance the recycling ratio of the Yulong project. The stock is trading at 11.7x 2024e and 9.9x 2025e P/E. We maintain an OUTPERFORM rating, and lift our target price 12% to Rmb23.47 to reflect higher earnings forecasts. Our TP implies 15.1x 2024e and 12.7x 2025e P/E, offering 29% upside.

Risks

Metal prices decline; production volume of main products disappoints; the company's projects proceed more slowly than expected.