2024 & 1Q25 results miss our expectations

Western Mining announced its 2024 results: Revenue rose 17% YoY to Rmb50bn, and net profit attributable to shareholders grew 5% YoY to Rmb2.9bn. In 4Q24, revenue rose 26% YoY and 13% QoQ to Rmb13.3bn, and net profit attributable to shareholders fell 66% YoY and 82% QoQ to Rmb199mn. The 2024 results missed our expectations due to a sharp decline in copper and zinc smelting and processing fees.

The firm announced its 1Q25 results: Revenue rose 51% YoY and 24% QoQ to Rmb16.5bn, and net profit attributable to shareholders grew 10% YoY and 306% QoQ to Rmb808mn. The 1Q25 results missed our expectations as copper smelting and processing fees continued to fall.

Sales volume and prices of mineral copper rose in 2024; falling processing fees weighed on smelting business.

Output: The firm’s output of mined copper, lead, and zinc grew 35%, fell 11%, and dropped 11% YoY to 177,543t, 53,970t, and 107,082t in 2024, equaling 112%, 104% and 98% of the guidance. The significant YoY growth in copper output was mainly due to the completion of renovation of Yulong project, and higher recovery rate thanks to optimization of production processes.

Metal prices and processing fees: According to iFinD, domestic average prices of copper, lead and zinc metals increased 10%,10%, and 8%YoY in 2024. Average processing fees for spot copper concentrates and zinc concentrates fell 86% and 50% YoY in 2024, leading to net losses at smelting subsidiaries. The firm's provision for asset impairment losses of Rmb330mn in 4Q24 further weighed on earnings.

Rising sales volume and prices of major mineral products boosted YoY earnings growth in 1Q25; continued decline in copper smelting and processing fees weighed on smelting segment.

Output: According to corporate filings, the firm's output of mineral copper, lead, and zinc grew 14%, 38%, and 18% YoY in 1Q25, equalling 26%, 25%, and 24% of guidance. In terms of metal prices and processing fees, according to iFinD, domestic ASP of copper, lead and zinc rose 11%, 6%　　and 14% YoY in 1Q25. The processing fees for spot copper concentrates slipped from US$6.75/dry tonne at the beginning of the year to - US$24.3/dry tonne at end-1Q25.

Trends to watch Planned output of lead-zinc mines to increase in 2025 thanks to

technological upgrading. According to corporate filings, the company in 2025 plans to produce 168,208t of copper (-5% YoY), 65,672t of lead (+22% YoY), and 124,581t of zinc (+16% YoY).

Key projects continue to advance; high dividend payouts. According

to corporate filings, the company is advancing the 30mnt/yr Yulong copper mine expansion project and the Shuangli Mining open-pit iron ore project.

We estimate that after the completion of Yulong Phase III, the firm's annual attributable production capacity of copper concentrates will increase 22% compared to 2024. The firm will increase its self-sufficiency rate for copper concentrates, and reduce the impact of fluctuations in copper smelting and processing fees on its profit. Moreover, the firm's cash dividend payout ratio was as high as 81% in 2024, translating to a static dividend yield of 6.4%.

Financials and valuation

Due to falling copper smelting and processing fees, we lower our 2025 net profit forecast 22% to Rmb3.4bn, and introduce our 2026 net profit forecast of Rmb3.7bn. The stock is trading at 11x 2025e and 10x 2026e P/E. We maintain an OUTPERFORM rating and cut our TP 20% to Rmb18.70 (reflecting lower earnings forecasts), implying 13x 2025e and 12x 2026e P/E, offering 20% upside.

Risks

Falling metal prices; disappointing output of major products; slower-than- expected project progress.