Key takeaway

The company primarily engages in lead, copper, gold, and silver smelting and recovery, as well as new materials businesses. It has now become China's largest lead smelting enterprise and silver producer, with significant scale advantages and strong barriers. As the price centers of metals such as gold, silver, and copper rise and project commissioning drives output growth, the company's smelting profit is expected to continue delivering increases. In addition, benefiting from rapid development in sectors such as semiconductors, high-end sputtering targets, 5G communications, and aerospace, demand for high-purity indium, tellurium, zinc, and cadmium is growing rapidly. The company is actively transitioning into the new materials sector and has established five high-purity metal pilot lines (7N tellurium, 7N indium, 7N cadmium, 7N zinc, 5N selenium). These lines have passed pilot-scale verification and can produce high-purity metal products that meet industry standards. Among the company's products, several rare and dispersed metals are not only included in the national strategic material reserve catalog but are also important items subject to export controls. These metals hold significant strategic importance and are also expected to achieve import substitution in high-purity materials used in related pan-semiconductor fields.

Thesis

Lead and copper smelting buisness as the defensive shield, high-purity rare & precious metals and new materials as the offensive play. The company's main business is the smelting and recovery of lead, copper, and rare & precious metals. Through raw material processing and smelting, it produces finished lead ingots and copper cathodes, while also comprehensively recovering valuable metals and elements such as gold, silver, sulfuric acid, antimony, and bismuth from smelting by-products. The company has now become China's largest lead smelting enterprise and silver producer, with significant scale advantages and strong barriers. As the price centers of metals such as gold, silver, and copper rise and the commissioning of the "Advanced Rare & Precious Metal Materials Intelligent Manufacturing Project" drives output growth, the company's smelting profit is expected to continue delivering increases.

Focusing on technological innovation and industrial chain extension in the new materials sector, the company's "Four Major New Materials" industrial chain products are widely used in semiconductors, new energy, and other fields. High-purity indium, tellurium, zinc, and cadmium serve as critical basic materials for sectors such as semiconductors, high-end sputtering targets, 5G communications, and aerospace (for example, high-purity indium benefits from indium phosphide substrates, high-purity tellurium benefits from Micro-TEC, and high-purity cadmium benefits from rapid demand growth in cadmium telluride thin-film photovoltaics and cadmium zinc telluride detectors). Their technological self-reliance and industrial security are highly prioritized by the nation. The company's pan-semiconductor high-purity metal materials project is a key initiative in its transformation into the new materials sector. It has successfully produced qualified products such as 7N high-purity tellurium, 7N high-purity indium, 7N high-purity cadmium, 7N high-purity zinc, and 5N high-purity selenium, with purity indicators reaching levels comparable to those of leading international peers. The company's high-purity metal products serve as key strategic raw materials for synthesizing semiconductor compounds such as cadmium telluride, cadmium zinc telluride, and indium phosphide, and have a wide range of applications. Among the company's products, various rare and dispersed metals are not only included in the national strategic material reserve catalog but are also important items subject to export controls. They hold significant strategic importance and are expected to enable domestic substitution in related high-purity materials for pan-semiconductor applications.

Risks:

(1) Risk of price fluctuations for lead, copper, gold, and silver: The company's main products are affected not only by changes in supply and demand in the real economy but also by the short-term speculation of international financial capital and the international political environment, among other factors, leading to significant price volatility. As a non-ferrous metal smelting and processing enterprise with a low self-sufficiency rate of raw materials, fluctuations in non-ferrous metal prices will impact the company's profitability.

(2) Safety and environmental protection risks: As a non-ferrous metal smelting and processing enterprise, the company has long operational processes and complex techniques involving numerous safety factors. Operations may pose certain safety hazards due to natural or human factors, and accidents resulting from these hazards could affect the company's normal production and operations. The company's smelting and production processes generate certain pollutants such as waste residue, wastewater, exhaust gas, dust, and noise. As national environmental supervision and law enforcement continue to intensify, public awareness of environmental protection grows, corporate environmental requirements become stricter, and national ma ndates such as the dual carbon goals and ultra-low emission standards are reinforced, the company may need to increase its environmental protection investment, thereby impacting its operating performance to some extent.

(3) Exchange rate risk: A certain proportion of the company's main raw materials, lead concentrate and copper concentrate, are purchased from abroad. The company's import and export business and foreign currency borrowings are primarily settled in US dollars. Fluctuations in the RMB to USD exchange rate will affect both the company's procurement costs and sales prices, thereby impacting its profitability.

(4) Risk of earnings miss. We estimate the company's net profit attributable to shareholders of the parent company for 2026-2028 will be RMB864mn, RMB910mn and RMB1,030mn, respectively. This earnings forecast is primarily based on: (1) the relative stability of the company's copper, lead, gold and silver smelting operations; and (2) the on-schedule commissioning of the company's "Pan-Semiconductor Advanced Precious Metals Intelligent Manufacturing Project" and solid demand for high-purity metals. If prices of metals such as copper, lead, gold and silver decline by 10% from our assumed levels, the company's net profit attributable to shareholders of the parent company for 2026 could fall by approximately 2.5% compared to our forecast.