2024 results miss our expectations

Metallurgical Corporation of China (MCC) announced its 2024 results: Revenue fell 12.91% YoY to Rmb552.03bn, and net profit attributable to shareholders fell 22.20% to Rmb6.75bn. The firm's 2024 results missed our expectations due to higher-than-expected asset and credit impairments.

Engineering contracting and resource development businessesunder pressure. In 2024, revenue from the engineering contracting business dropped 14.35% YoY to Rmb501.45bn. Revenue from the resource development business fell 5.83% YoY to Rmb6.42bn. Revenue from the comprehensive real estate business rose 13.52% YoY to Rmb18.75bn. By region, revenue from domestic and overseas businesses fell 13.8% and rose 6.8% YoY to Rmb523.89bn and Rmb28.14bn.

Profit margin of real estate business remains under pressure. In2024, the firm's blended gross margin (GM) remained largely flat YoY at 9.7%, with GM of the engineering contracting business rising 0.15ppt YoY to 9.24%. GM of the comprehensive real estate business fell 3.97ppt YoY to 3.92%.

Expense ratios rise slightly. In 2024, the firm's selling and G&A expense ratios rose 0.1ppt and 0.2ppt YoY to 0.6%, and its financial expense ratio was 0.2%, largely flat YoY.

Operating cash flow improves notably. In 2024, net operating cash flowrose 33.20% YoY to Rmb7.85bn, thanks to increased payment collection and cost reduction.

Large impairment provisions notably weigh on profit. The firm madeRmb523mn of provisions for asset impairment losses and Rmb4.91bn of credit impairment losses in 4Q24, notably weighing on full-year earnings.

Liability-to-asset ratio rises. The firm's liability-to-asset ratio rose 2.82ppt YoY to 77.43% in 2014. The firm proposed a dividend of Rmb0.056/sh for 2024, and its cash dividend payout ratio remained stable at 17.2%.

Trends to watch Steady growth in overseas new orders; overseas business to　continue expanding. In 2024, the value of MCC's new contracts fell 12.4% YoY to Rmb1.25trn, while that of new overseas contracts rose 47.8% YoY to Rmb93.24bn. The firm’s overseas orders grew rapidly, and we expect its overseas business to continue expanding.

Mining projects in Pakistan and Afghanistan continue to advance. In2024, the output of nickel and cobalt at the Papua New Guinea Ramu Nico Mine Project declined 14.7% and 14.6% YoY, that of crude copper at the Pakistan Saindak Copper-Gold Mine Project rose 40.0% YoY, and that of zinc and lead at the Pakistan Duddar Lead-Zinc Mine Project changed -0.9% and +6.7% YoY. For greenfield projects, the firm has largely completed the approval process for the Saindak copper mine in Pakistan and is expediting feasibility studies and road construction for the Aynak copper mine in Afghanistan.

Financials and valuation

Due to higher provisions for asset and credit impairment, we lower our 2025 attributable net profit forecast 5.1% to Rmb7.82bn. We introduce our 2026 attributable net profit forecast of Rmb8.24bn. A-shares are trading at 8.1x 2025e and 7.7x 2026e P/E, and H-shares at 3.9x 2025e and 3.7x 2026e P/E. We maintain OUTPERFORM ratings for A- and H-shares. We maintain our TP of Rmb3.9 for A-shares, implying 10.3x 2025e and 9.8x 2026e P/E with 27.5% upside. We maintain our H-share TP of HK$2.0, implying 5.0x 2025e and 4.7x 2026e P/E with 27.4% upside.

Risks

Project progress disappoints; impairment pressure worse than expected.