2023 results miss our expectations
　　CGN Mining announced its 2023 results: Revenue rose 102% YoY to HK$7.36bn, and net profit attributable to shareholders decline 3.5% YoY to HK$497mn, implying EPS of HK$0.065 (-3.5% YoY), missing our expectations, mainly because Ortalyk, a joint venture with Kazatomprom, had yet to write back the fines, and mine production costs increased.
　　The firm's attributable natural uranium output in 2023 rose 3% YoY to 1,277tU. Kazatomprom, with which CGN Ming holds two joint ventures (Ortalyk and Semizbay-U) lowered its 2024 output target to a mere 3% YoY increase due to supply shortage of sulfuric acid. The natural uranium mines in which the firm holds stakes in will continue to reduce production. Overall mine production costs trended up due to increase in salaries for Kazakhstan-based employees and raw material cost, and adjustment of underground resource use tax.
　　Semizbay-U: Actual natural uranium output was 976.8tU in 2023. Specifically, Semizbay Mine produced 407.4tU with production cost of US$27/lb, while Irkol Mine produced 569.4tU with production cost of US$23/lb. The production plan completion rate was 100.2%, indicating stable operations.
　　Ortalyk: Actual natural uranium output in 2023 was 1,643.6tU. Specifically, Central Mynkuduk Mine produced 1,512.9tU production cost of US$17/lb, and Zhalpak produced 130.7tU with production cost of US$27/lb. The production plan completion rate was 97.2%, and it was mainly due to decline in supply of raw materials such as sulfuric acid from Kazakhstan.
　　Natural uranium trading: The volume of internal trading (which is based on the firm’s off-take rights to products of uranium mines in which it invests) fell 1.7% YoY to 1,299tU, with ASP and selling cost reaching US$64.4/lb and US$64.9/lb. International trading volume rose 86% YoY to 5,670tU, with ASP and selling cost reaching US$49.6/lb and US$48.4/lb.
　　Trends to watch
　　Natural uranium prices to rally further over the medium and long term. Due to factors such as Cameco's production increase plan, the spot price of natural uranium retreated from its previous high of US$106/lb to US$88/lb on March 20. Despite the short-term correction, we believe the long-term uptrend in natural uranium prices remains intact, mainly　considering: 1) Global nuclear power demand is set to rebound. As of end- 2023, the world had 372GW of installed nuclear power capacity in operation, and 58 nuclear power units under construction; 2) the world’s　largest natural uranium producer Kazatomprom has lowered production target for 2024 to 21,000-22,500tU due to shrinkage of sulfuric acid supply; and 3) the reserves of uranium mines in Kazakhstan are falling, and CGN Mining thinks the production cuts and decommissioning of in- operation uranium mines worldwide may peak in 2028.
　　Financials and valuation
　　Given Kazatomprom’s downward revision to its production plan for 2024, we trim our 2024 net profit forecast 10% to HK$878mn, and introduce 2025 net profit forecast of HK$1.09bn, implying 14.3x 2024e and 11.5x 2025e P/E. We maintain an OUTPERFORM rating and our target price, which implies 15.5x 2024e and 12.4x 2025e P/E, and 8% upside.
　　Risks
　　Fluctuations in natural uranium prices; disappointing expansion of global nuclear power capacity and/or uranium mine production.