2024 results beat our expectation

Shanjin International Gold announced its 2024 results: Revenue rose 67.6% YoY to Rmb13.585bn and net profit attributable to shareholders grew 52.6% YoY to Rmb2.173bn. Basic net profit per share was Rmb0.78, beating our expectation due to higher-than-expected gold prices.

Trends to watch

The firm's earnings in 2024 hit a new high, mainly due to strong profitability of its existing three major gold mines, rising sales volume and prices, and effective cost control. First, gold prices hit a new high in 2024. The weighted average price of standard gold on the Shanghai Gold Exchange rose 22% YoY to Rmb548/g in 2024, and gross margin of the firm's alloy gold rose 12.78ppt YoY to 73.54% in 2024, hitting a new high.

Second, the firm's gold output increased 14.69% YoY to 8.04t in 2024; lead and zinc output rose 14.96% YoY to 29,886t; silver output rose 1.57% YoY to 196.05t. The firm expects its gold output to be no less than 8t in 2025 and its output of other metals to be no lower than the levels in 2024.

Third, costs fell sharply YoY. The firm's pre-amortized cost of gold fell 7.3% YoY to Rmb126.25/g in 2024 from Rmb136.26/g in 2023, and its post-amortization cost of gold was only Rmb145.4/g, down 17.6% YoY. The three major gold mines contributed 95.87% of the firm’s net profit attributable to shareholders in 2024.

Organic growth and M&A to offer additional boost. First, the firm announced its strategic plan. It plans to increase mined gold output by 49% vs. 2024 to 12t by the end of the 14th Five-Year Plan (FYP) period. It plans to increase mined gold output and gold resources to 15t and 300t by end-2026 (up 87% and 8% vs. 2024), and 22t at end-2028 and 28t at end- 15th FYP (both up over 100% vs. current levels).

Second, the firm continued international expansion. In August 2024, it completed the acquisition of Osino. According to corporate filings, Osino has mining development and exploration projects in Namibia, and its core asset, the Twin Hills project, is under construction and is likely to become　the largest single gold mine in Namibia when it is completed and put into operation.

Third, mine reserves increased. The acquisition of Osino brought the firm with another 127.2t of gold resources. In addition, the firm expedited exploration, and increased 12.7t of gold and 95.7t of silver resources from existing mines in 2024. As of end-2024, it had 277t of gold resources, exceeding its gold resource target for the end of the 14th FYP period.

The firm's debt-to-asset ratio is relatively low among listed gold companies, and it has ample cash on hand and strong financing capabilities, which may lay a solid foundation for future expansion. As of 2024, the firm's liability-to-asset ratio stood at 18.57%, relatively low among peers, and its cash, held-for-trading financial assets, and other current assets totaled about Rmb4.2bn, which we think may lay a solid foundation for future expansion.

Financials and valuation

Considering gold price rallies and the firm’s large output upside, we raise our 2025 and 2026 attributable net profit 8% and 27% to Rmb2.8bn and Rmb3.5bn. We maintain OUTPERFORM and lift our TP 12% to Rmb24, implying 23.7x 2025e and 19.0x 2026 P/E, offering 30% upside. The stock is trading at 18.2x 2025e and 14.6x 2026e P/E.

Risks

Disappointing project construction and/or gold and silver prices; sharper- than-expected rise in costs.