UBS: ZHAOJIN MINING's profit last year exceeded expectations, maintaining a "Buy" rating

UBS published a research report indicating that ZHAOJIN MINING (01818.HK) achieved a net profit growth of 149% year-on-year to RMB 3.6 billion last year, exceeding the bank's and market expectations by approximately RMB 200 million, mainly benefiting from a gain of RMB 1.5 billion from changes in the fair value of financial assets, while core earnings were generally in line with expectations. During the period, gold production was 17.7 tons, slightly higher than the management's guidance of 17.5 tons. The domestic comprehensive unit cost was RMB 223 per gram, a year-on-year decrease of 4%; the overseas unit cost was USD 2,119 per ounce (approximately RMB 490 per gram).

The bank noted that the group's sales and administrative expenses as a percentage of revenue decreased from 13% to 9%, with other expenses reaching RMB 1.05 billion, mainly due to impairment losses on intangible assets and construction in progress. UBS expects a positive market reaction to the performance, as this is a rare instance of earnings exceeding expectations following two consecutive quarters of underperformance in the second and third quarters. Currently, ZHAOJIN's forecasted price-to-earnings ratio is 11 times, which is low compared to Zijin Mining and WanGuo Gold Group's 17.5 times and 16.5 times, respectively.

Recently, gold prices may continue to be affected by macro uncertainties such as conflicts in the Middle East and fluctuations in oil prices, which could negatively impact market sentiment towards gold mining stocks. However, the bank remains constructive on the outlook for gold prices, believing that the recent weakness in stock prices may provide a more attractive buying opportunity for gold mining stocks. The bank maintains a "Buy" rating on ZHAOJIN with a target price of HKD 55