Stock Commentary                              Date: 13/07/2018

Stock:                                                   ZHAOJIN MINING INDUSTRY CO.LTD (1818.HK)

Closing price:                                      $6.10 (16/07/2018)

52 weeks range:                                 $5.437 – 7.257

Shares outstanding:                           1,049,215,000

Market Capitalization (H Shares):            HK$ 6,410,703,650 (16/07/2018)

Target Price (12 months):                         Neutral

Summary :

Zhaojin mining industry Co. Ltd. (1818.HK) is one of the leading producers of gold bullions and gold related products in PRC. In the midst of various factors that impede the price of gold, such as trade conflicts between USA and the rest of the world, interest upward movement as well as economic slowdown in Asia region. Also, the gold price movement is negatively correlated with the USD movement and we witnessed an upward movement in the USD (contributed by the increase in rate as well as cessation of quantitative easing) and in turn, may affect the demand for gold. Nevertheless, the group aimed to consolidate its position as the number one gold producer in the region and continued to implement various means or measures that enhance its gold qualities while minimize the impact of mining on the environment.

Overview – 2017 :

1. Quick glance of the gold price:

As shown on the chart above, Gold had been trading within a range between USD1240/OZ to USD1365 /OZ throughout second half of 2017 and first half of 2018. The failure of the Gold price to make a breakthrough of such trading tunnel might be attributed by the USD movement. Against the backdrop was the US Trump administration initiated various trade conflicts with different countries as well as the normalization of the interest rate after years of quantitative easing. In a short term, the gold price might not be able to reverse such trend; on the other hand, it is possible that the gold price may resume the downtrend movement after US Federal Reserve held their third meeting in early August.

1. The company, Zhaojin Mining and its subsidiaries (together referred to as the “Group”) are mainly engaged in the exploration, mining, ore processing, smelting and sale of gold products. The main product of the group included “Au9999” and “Au9995” standard gold bullions and other gold products under the company’s brand name of “Zhaojin”
2. The Group’s revenue increased by 0.14% comparing to last year (comparing to a decrease in the first half of the year). However, the group’s gross profit margin recorded a decrease in comparison to 2016. The group attributed the decline to the decrease in the sales of volume of gold.
3.  However, the group had an overall decrease in gold production in 2017, a reduction of 6.51% in comparison to the 2016, to approximately 652,704.36ozs. The Output had actually improved in the second half of the year ( the gold production output decreased by 11.77% in the first of half 2017 in comparison to the first half of 2016)
4.  Earnings per share had a significant increase as compared to last year, from RMB 0.12 to RMB 0.2 (basic and diluted), an approximate 66.7% increase.
5. Nevertheless, the company again recorded a decline in revenue in the 1^st half of 2018. However, further elaboration may be disclosed in the half yearly reported in August.

SWOT ANALYSIS:

Strength :

1. The group is one of the major gold producers of PRC.
2. The group continue to strengthen its internal control and effective management as mentioned in its yearly report

Weakness :

1. The group’s revenue is correlated with the international gold price. The price of gold had been stagnant for the past year due to lethargic demand.

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Opportunities :

1. Through internal management upgrade, the company can consolidate its position.
2. Also, through various technological upgrades, the company may be able to enhance output while minimize the COGS

Threat :

1. US dollar may strengthen due to Fed’s policies to cease quantitative easing, in turn, it may weaken the gold price
2. Slowdown in Asia economy may also affect the gold demand.

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” I, Ni Kwok Kuen Alex, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto. “