1H24 results in line with market expectations

JCHX Mining Management announced its 1H24 results: Revenue rose 30.31% YoY to Rmb4.27bn and net profit attributable to shareholders grew 52.29% to Rmb613mn.

In 2Q24, revenue rose 27.56% YoY and 16.59% QoQ to Rmb2.3bn, and net profit attributable to shareholders grew 55.88% YoY and 23.81% QoQ YoY to Rmb339mn, in line with market expectations, thanks to the coordinated development of mining service and resource businesses.

Mining service segment continues to grow steadily; copper mine output growth to accelerate. In 1H24, revenue of the mining service segment rose 10.3% YoY to Rmb3.30bn, and gross profit grew 15.3% YoY to Rmb927mn, maintaining steady growth.

In 1H24, copper output (metal equivalent) rose 312.9% YoY to 13,212t, and gross profit of the resource segment rose 406.6% YoY to Rmb368mn.

Trends to watch

A leading provider of integrated mine operation services; substantial progress in mining services plus resources strategy.

1) Mining service business segment: The firm has established a strong reputation in overseas markets thanks to its technological expertise and extensive experience in mining development services. The firm is expanding its presence in both domestic and overseas markets. In 1H24, The firm's overseas mining service business accounted for 64% of total revenue in 1H24, up 1ppt from 2023. We believe the firm’s efforts to expand its presence in domestic and overseas markets will help its earnings from mining services improve steadily.

2) Resources business segment: The firm has established a dual-driver (mining development services and resource development) growth model. In 1H24, the firm successfully acquired the Lubambe copper mine in Zambia, strengthening its resource business and propelling the comprehensive transformation from a single mine development service company to a group-based mining company. We believe the services plus resources business strategy has reached a milestone, and we are upbeat on its long-term resource growth.

Copper mine output growth accelerates; resources business serving as new growth engine. The firm has controlled and invested in five mines.

1) The Lonshi copper mine in the Democratic Republic of the Congo (DRC) has a designed annual production capacity of 40,000t. The firm plans to ramp up to full capacity and produce 20,000t in 2024.

2) The Dikulushi copper mine in the DRC plans to produce about 10,000t of copper in 2024.

3) Liangchahe phosphate mine in China has put into operation its Phase I project with annual production capacity of 300,000t. The Phase II project with annual capacity of 500,000t is scheduled to start production in 2025. The firm plans to produce 300,000t of phosphate ores in 2024.

4) Tt holds a 59.99% stake in Cordoba Minerals in Colombia. The firm has submitted an environmental impact assessment for government approval, and plans to produce about 25,000t of copper and 1.5t of gold annually.

5) The Lubambe copper mine in Zambia plans to upgrade technology and achieve annual copper output of 32,500t in 2027.

We believe the mining services plus resources business strategy has started to pay off, and its earnings growth will accelerate.

Financials and valuation

Given rising average mine cost, we lower our 2024 and 2025 earnings forecasts 22% and 11% to Rmb1.52bn and Rmb1.96bn. The stock is trading at 17x 2024e and 13x 2025e P/E. We maintain an OUTPERFORM rating and cut our TP 10% to Rmb57, implying 23x 2024e and 18x 2025e P/E, offering 37% upside.

Risks

Sharp fluctuations in product prices; disappointing capacity expansion; geopolitical risks in countries where overseas projects are located.