2022 earnings hit record high; overall results in line
　　Zijin Mining's net profit attributable to shareholders jumped 27.9% in 2022, a record high. In 2022, revenue rose 20.1% YoY to Rmb270.3bn, and net profit attributable to shareholders grew 27.9% YoY to about Rmb20bn. Recurring attributable net profit rose 33% YoY to Rmb19.5bn. In 4Q22, revenue rose 17.8% YoY and fell -7.8% QoQ to Rmb66.14bn. Attributable net profit fell 22.8% YoY and fell 16% QoQ to Rmb3.37bn. The firm’s overall results are in line with our expectations.
　　Trends to watch
　　The firm's full-year earnings hit a new high, mainly due to rising product sales volume and prices. Gross profit of copper rose 15% YoY to Rmb21.58bn amid rising output volume and falling prices. In 2022, the firm's selling price of copper fell 8% YoY to Rmb49,078/t. Meanwhile, its output rose 48.67% YoY to about 877,000t, mainly driven by Kamoa-Kakula, Julong Copper, Serbia Zijin Mining, and Serbia Zijin Copper. Production cost rose 9.17% YoY to Rmb19,862/t.
　　Sales volume and price of gold both increased, and gross profit rose 37% YoY to Rmb10.76bn. In 2022, the selling price of gold rose 6% YoY to Rmb368.6/g, and output increased 18.84% YoY to 56.4t, mainly driven by the Buriticá Gold Mine, ?ukaru Peki Copper and Gold Mine, Aurora Gold Mine, Norton, Luoyang Kunyu, and Shanxi Zijin. Production cost rose 8.82% YoY to Rmb192/g.
　　The firm's gross profit of mined zinc rose 13% YoY to Rmb3.06bn thanks to rising sales volume and prices. In 2022, the selling price of mined zinc rose 11% YoY to Rmb15,624/t, and the firm's output of mined zinc grew 1.48% YoY to about 402,000t, with production cost rising 8.79% YoY to Rmb8,017/t.
　　In 2022, the firm exceeded its output target for copper and silver, while its output of gold, zinc, and lead slightly missed expectations. In 2022, the plan completion rate was 102% for copper, 125% for silver, and 92% for lead and zinc. The rate was 93% for gold, mainly due to disappointing production resumption at the Porgera gold mine.
　　Future copper and gold output to rise; moving faster to become a top 3-5 global miner. First, following two M&A deals in the gold sector, we expect the firm's gold output to reach 91t in 2025 with CAGR of 18% over 2022-2025. Second, the firm has made key progress in several major copper mine projects, and its high-margin projects are gradually coming online. Over 2022-2025, the firm's copper output may grow at a CAGR of 10% from about 880,000t to 1.17mnt, and its attributable output may increase from about 720,000t to about 910,000t with a CAGR of 9%.
　　Financials and valuation
　　Zijin announced a new plan for 2023-2025 in January 2023. Amid China's policy guidance on ensuring resource security and supply, the firm plans to further improve its strategic investment in high-quality domestic resources. We expect its long-term copper and gold output to rise. Given rising demand in China and possible interest rate cut by the US Federal Reserve, we expect copper and gold to drive valuation re-rating for Zijing. We maintain our 2023 and 2024 attributable net profit forecasts at Rmb26.7bn and Rmb31.9bn. We maintain OUTPERFORM ratings and target prices for A-shares and H-shares at Rmb14.8 and HK$16.4. The A-shares are trading at 11.8x and 9.9x 2023e and 2024e P/E, and our target price implies 14.7x and 12.2x 2023-2024e P/E with implying 23% upside. The H-shares are trading at 10.7x and 8.7x 2023e and 2024e P/E, and our target price implies 14.0x and 11.4x 2023-2024e P/E with 28% upside.
　　Risks
　　New supply of copper and zinc beats expectations; capacity expansion disappoints; higher-than-expected Fed rate hikes.