YINTAI GOLD(000975)：1H23 RESULTS IN LINE WITH EXPECTATION;INCREASE IN BOTH SALES VOLUME AND ASP UNDERPINS PROFITABILITY

　　1H23 results in line with our expectation
　　Yintai Gold announced 1H23 results: Revenue rose 14.48% YoY to Rmb4.57bn, and attributable net profit grew 29.8% YoY to Rmb735mn. In 2Q23, revenue climbed 35.3% YoY and 8.6% QoQ to Rmb2.38bn, and attributable net profit advanced 50% YoY and 47.8% QoQ to Rmb438mn, in line with our expectations.
　　Trends to watch
　　We attribute the YoY earnings growth in 1H23 to rising sales volume　and prices of gold products. Gold prices trended upward amid fluctuations in 1H23. The standard gold price on the Shanghai Gold Exchange rose 10.7% YoY to Rmb435/g, and ASP of Yintai Gold’s alloy gold increased 10.67% YoY in 1H23. The gross margin of alloy gold grew 3.35ppt YoY to 60.52%. In 2Q23, ASP of gold climbed 12.3% YoY and 6.5% QoQ to Rmb448/g, giving a boost to the firm's profit. In addition, sales volume of Yintai Gold’s products increased. Sales volume of alloy gold rose 14.68% YoY in 1H23.
　　We are upbeat on the firm's growth given its high-quality assets in China and strong per-gram profitability. In 1H23, Yulong Mining, Heihe
　　Yintai, Jilin Banmiaozi, and Qinghai Da Qaidam1 recorded net profits of Rmb174mn, Rmb410mn, Rmb175mn, and Rmb320mn. In addition, the Huasheng gold mine (of which the firm acquired a 60% stake in September 2021) still suspended production, but we expect the project to provide an impetus for Yintai Gold’s output growth over the long run after it resumes operation.
　　Yintai Gold has a low gearing ratio among comparable listed gold companies. Its ample cash on hand and strong financing capacity lay a solid foundation for exogenous business expansion. As of 1H23,the firm’s liability-to-asset ratio was 15.62%, a low level in the industry. Its cash on hand (including monetary funds, held-for-trading financial assets, and other current assets) totaled about Rmb3.33bn, laying a solid foundation for future expansion.
　　Uncertainty over change of control to be cleared; re-rating likely. On　June 30, Yintai Gold released an announcement on the progress of the proposed change in control with Shandong Provincial State-owned Assets Supervision an Administration Commission (Shandong SASAC). As of July 18, the two parties were going through registration procedures for the transfer of shares; upon completion of the registration, the firm’s actual controller will change to Shandong SASAC.
　　Total consideration for Yintai Gold’s controlling stake is Rmb12.7bn, implying a market cap of about Rmb61bn for a 100% stake in the firm, a 66% premium over its latest share price on July 18. We believe the high premium reflects market recognition of the firm's growth potential after taking into account factors such as its gold reserves, production and operation status, prospect of mineral exploration, and change in control.
　　Financials and valuation
　　We maintain an OUTPERFORM rating, but we cut our 2023 and 2024 earnings forecasts 27.7% to Rmb1.7bn and 31.6% to Rmb2.0bn due to the slower-than-expected acquisition of the Mangshi gold mine. The stock is trading at 22x 2023e and 18x 2024e P/E. We cut our TP 11.3% to Rmb16.5 (26x 2023e and 23x 2024e P/E), as the firm is in the transition period for a change of control right and could see a re-rating after the resulting uncertainty clears, offering 24.8% upside.
　　Risks
　　Sharp fluctuations in gold prices; slower-than-expected progress in project acquisition; slower-than-expected change in control.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。