3Q24 results beat market expectations

JCHX Mining Management announced its 3Q24 results: in 1-3Q24, revenue rose 31.23% YoY to Rmb6.97bn, and net profit attributable to shareholders grew 53.96% YoY to Rmb1.09bn. In 3Q24, revenue rose 17.30% QoQ and 32.73% YoY to Rmb2.70bn, and net profit attributable to shareholders grew 41.71% YoY and 56.14% YoY, to Rmb480mn. The firm’s results beat market expectations.

Mining service segment continues to grow steadily; copper mine output growth to accelerate. Revenue of the mining service segment rose 3.04% YoY to Rmb4.88bn in 1-3Q24, maintaining steady growth. In 3Q24, revenue fell 10.21% QoQ to Rmb1.57bn, which we attribute to tight electricity supply in the Democratic Republic of the Congo, which affected the progress of some projects. In 1-3Q24, revenue of the resource segment rose 343.56% YoY to Rmb1.98bn, and gross profit grew 291.86% to Rmb874mn. We attribute the substantial earnings growth in the resources sector to: 1) Production ramp-up at the Lonshi copper mine, which led to increased output and lower copper cost per tonne; and 2) higher-than-expected output and sales volume of the Dikulushi copper mine thanks to high grade.

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. It continues to strengthen its resource business and propel 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. Construction of the Phase II project with a capacity of 500,000t/yr is scheduled to be completed in three years. 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.

Financials and valuation

We maintain our 2024 and 2025 earnings forecasts. The stock is trading at 17x and 13x 2024e and 2025e P/E. We maintain an OUTPERFORM rating and TP of Rmb57, implying 23x and 18x 2024e and 2025e P/E, offering 37% upside.

Risks

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