MacVisit: Ji En Nickel

CHINA
600432 CH

Not rated

Stock price as of 17/11/2014

GICS sector
Market cap
Avg Value Traded (3m)
12m high/low
PER FY13A
P/BV FY 13A

Rmb

14.08
Materials
3,699
37
19.64/7.02
117
3.85

US$m
US$m
Rmb
x
x

Historical financials
YE Dec (Rmb m)

2011A

2012A

2013A

Revenue
% growth
EBIT
% growth
EPS
% growth
EBIT Margin

2793
24%
239
-17%
0.04
-162%
8.5%

2496
-11%
11
-96%
-0.03
n.a.
0.4%

2369
-5%
185
1628%
0.12
n.a.
7.8%

Source: Company data, FactSet, November 2014

Share Price Driver

Conclusion
Ji En Nickel is one of the biggest nickel plays in China, and is one of the two

listed nickel companies in the A-share market. It owns six domestic nickel
mines and has expanded into overseas nickel resources. As nickel accounts
for over 95% of total gross profit, Ji En Nickels net earnings are sensitive to
nickel price changes. The company has been recording thin profit for the past
3~4 years on high financial costs and management expects that nickel price
rises and overseas mine ramp up could help improve profit performance.

Impact
Key nickel player in A-share market. Ji En Nickel is the second biggest

nickel company in China, and is one of two listed nickel plays in the A-share
market. It produces nickel ore, refined nickel and nickel sulphide. As its
Nunavik copper-nickel mine in Canada ramped up and was put into operation
in 1H14, the company recorded a substantial increase in sales revenue in
1~3Q14, up 78% compared with the corresponding period last year.
Rich nickel and cobalt resources. Ji En Nickel owns six mines in China,

with nickel resources of 190kt and copper resources of 30kt in total. Five of
the six domestic mines are located in Jilin province, and the other one is in
Inner Mongolia. Fujia mine and Daling mine are the key mining bases with a
long history, and nickel resources amounted to 50~60kt as of 2013. Together,
these two mines contribute 80% of the total nickel metal output.

Thematic
Growth
Value
Event
Source: Macquarie Research, October 2014

Ambitious overseas expansion plan. Ji En Nickel has been ambitious in

Historical share price performance

Rmb
3500

40

3300

35

3100
2900

30

2700

25

2500
2300

20

2100

15

1900

10

1700
1500

SHCOMP Index

Waiting for overseas mine contribution

Ji En Nickel (RHS)

Source: Bloomberg, Macquarie Research, November

2014. Price as of 17 November 2014

resource expansion and has acquired nickel mines in Canada and Australia. It
has invested in four nickel mines in Canada, one in Australia and one in
Papua New Guinea. The overseas nickel resources amount to a total of 90kt,
much more than its mines in China, according to management.
Future growth in nickel production volumes. The companys nickel metal

output is around 5kt annually. The domestic Helongchangren copper-nickel

mine acquired in 2007 is likely to complete construction and start operations
in the near term, according to management. Management expects it to
contribute 800tpa capacity. The Nunavik mine in Canada is in operation and
will make a substantial contribution as it ramps up to full capacity.
Loss-making earnings on high financial cost. The 1~3Q gross margin rose

to 30% from the 0% last year due to the rally in nickel prices on the
Indonesian ore export ban. However, with a net gearing ratio of 60%, high
financial costs weighed on profits and Ji En Nickel recorded a Rmb14m loss
in 1~3Q14.The company aims to reduce financing costs following a recent
equity raising.

Outlook
Analyst(s)
Hefei Deng
+852 3922 1136
Matty Zhao
+852 3922 1293

Ji En Nickel reported 1~3Q14 sales of Rmb2.4bn, up 78% YoY, and gross

hefei.deng@macquarie.com
matty.zhao@macquarie.com

19 November 2014

Macquarie Capital Securities Limited

profit of Rmb576m, up 162% YoY. Net earnings amounted to a loss of

Rmb14.3m, equivalent to EPS of -Rmb0.02. The stock is now trading at 117x
2013A PER, 3.85x 2013A P/BV, and 0.4% dividend yield with 3.3% ROE. The
street estimate currently shows: FY2014E EPS at Rmb0.17, up 40% YoY, and
FY2015E at Rmb0.21, up 24% YoY with the shares currently trading at 67x
FY15E PER based on Bloomberg consensus estimates.

Please refer to page 6 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.

Macquarie Research

MacVisit: Ji En Nickel

Ji En Nickels relationship with the actual controller

Ownership
Jilin Hao
Rong
Group
26%

Others
73%

Angang
Group
1%

Jilin People's government state-owned

asset supervision and management
committee
33%
Jilin Hao Rong Group
25.62%
Jilin Ji En Nickel

Balance sheet data and refinancing (As of 3Q14)

Management and directors background

Net debt/equity: 60%

Mr. Shu Wu was named chairman in December 2009. He is

BVPS: Rmb6.65/sh
Cash and equivalents: Rmb11.2bn as of 3Q14
Short-term debt: Rmb11.1bn as of 3Q14
Long-term debt: Rmb5.1bn as of 3Q14

also director and CEO of the parent co., Jilin Hao Rong
Non-ferrous Group, since March 2008.
Mr. Guangping Xu has served as one of the directors of Ji

En Nickel since December 2001, and has been the

chairman of the board of the Jilin Hao Rong non-ferrous
group since June 2009.

Latest results highlights (As of 3Q14)

Latest developments

Ji En Nickel recorded net losses attributable to shareholders

The Nunavik copper-nickel mine of Royalties Mining in

of Rmb14.3m in 1~3Q14, from a net loss of Rmb35.3m in

1~3Q13. 3Q NPAT was a loss of Rmb18.2m, turning lossmaking from net profits in 2Q of Rmb31.8m.
1~3Q14 revenue reached Rmb2.4bn, up 78% YoY. 3Q

Canada were acquired by Ji En Nickel and put into

operation in 2H14. It recorded nickel concentrate sales of
Rmb570m, contributing to large growth in total revenue of
Ji En Nickel in 2H14.

sales revenue was Rmb986m, up 63% QoQ.

Gross profit was Rmb576m in 1~3Q14, up 162% YoY. 3Q

gross profit recorded Rmb300m, up 256% QoQ.

Operating loss was Rmb101m in 1~3Q14, bigger than the

loss of Rmb81m in 1~3Q13. 3Q14 operating loss was

Rmb57m, a turnaround from operating profit of Rmb28m in
2Q14.

19 November 2014

Macquarie Research

Fig 1

MacVisit: Ji En Nickel

Ji En Nickel revenue breakdown (as of 1H14)

Fig 2

Ji En Nickel: gross profit and margin (1H14)

Rmb mn
160

30%

140

Other
16%

25%

120

Nickel
sulphide
28%

20%

100
80

15%

60

Nickel
concentrate
41%

Refined
nickel
15%

10%

40
5%

20
0

0%
Nickel sulphide

Refined nickel

Gross profit

Nickel concentrate

Gross margin (RHS)

Source: Company data, Macquarie Research, November 2014

Source: Company data, Macquarie Research, November 2014

Fig 3

Fig 4

Sales breakdown by region (as of 1H14)

Ji En Nickel: mines summary

Mines
Headquarter
Royalties Mining

Overseas
42%
Domestic
58%

Location
Summary
Jilin China Nickel reserves of 190kt
Canada
Nickel reserves of 228kt
Cooperated with GBK to
Raglan mine
Canada
explore the mine zone
Liberty Mines
Canada
Nickel reserves of 460kt
Victory Mining
Canada
Nickel reserves of 328kt
Papua
Nickel-Cobalt mine with
Ramu Mine
New
nickel reserves of 1mnt
Guinea
Metallica Minerals Australia Nickel reserves of 268kt

Source: Company data, Macquarie Research, November 2014

Source: Company data, Macquarie Research, November 2014

The growth proposition

The value proposition

Ji En Nickels sales revenue grew from Rmb1.1bn in 2009

The stock is now trading at 122x 2013A PER, 3.99x 2013A

to Rmb2.4bn in 2013, or equal to a 16% CAGR.

Gross profit increased to Rmb499m in 2013 from Rmb415m

in 2009, or equal to a 4% CAGR.

Gross margin fell from 37% in 2009 to 21% in 2013.

P/BV, and 0.3% dividend yield with 3.3% ROE.

The street estimate (based on 1 analyst) currently shows:

FY2014E EPS at Rmb0.17, up 40% YoY, and FY2015 at

Rmb0.21, up 24% YoY; and is currently trading at 70x
FY15E PER based on Bloomberg.

Operating earnings fell to a loss of Rmb178m in 2013 from

an operating profit of Rmb118m in 2009.

19 November 2014

Macquarie Research

MacVisit: Ji En Nickel

The business model

The main risks

Ji En Nickel is one of the biggest nickel producers in China.

Nickel price risk As a pure nickel ore play, Ji En Nickels

Its products include nickel sulphide, refined nickel and nickel

concentrate.
The company integrates from the upstream nickel ore

mining to the downstream smelting business.

Ji En Nickel owns six nickel mines in Jilin and Inner

Mongolia in China, with nickel reserves of 190kt. The

company expanded resources ambitiously overseas since
2009. It invests in four nickel mines in Canada, one in
Australia and one in Papua New Guinea.

earnings and share price are sensitive to underlying LME

nickel price and nickel ore prices. As such, changes in
nickel metal may affect Ji En Nickels earnings performance.
Project construction progress Nunavik copper-nickel mine

in Canadian Royalties has ramped up and was put into

operation in 1H14. Yarong battery material project has
started construction. The progress of these projects will
affect Ji En Nickels future earnings performance.

Strengths

Weaknesses

Key nickel producer with abundant nickel resources. Ji

Relatively low margin and weak profitability. With the

En Nickel is one of the biggest nickel plays in China,

following Jichuan Group in terms of nickel output. With
external resources expansion, the company owns rich
resources both domestically and overseas.

increase in laterite nickel ore with cost advantages, sulphide

nickel ore usage became smaller with relatively high
production costs. As most of the nickel output comes from
sulphide ore, Ji En Nickel recorded declining margin and
weak profitability.

Opportunities

Threats

Capacity ramp up in Canadian Royalties mine. After the

Competition from laterite nickel ore. As sulphide ore

Nunavik copper-nickel mine in Canada was put into

operation in 1H14, the company recorded a substantial
increase in revenue in 1~3Q14. With the mine ramping up
to full capacity, the earnings contribution from the Nunavik
mine should continue to increase, according to
management.

becomes rare and more difficult to explore, laterite ore takes

up more and more share with lower production cost and rich
resources. Ji En Nickels output is from sulphide ore and
would face fierce competition from laterite ore producers.

Nickel price hike on deficit and cost driven. Our

commodity team expects the LME nickel price to increase

by 19% in 2014 to US$17,835/t, and by another 33%/18% in
2015/16E. As a pure nickel play, Ji En Nickels earnings are
sensitive to changes in nickel prices and could benefit from
nickel price increases and vice-versa.

19 November 2014

Macquarie Research

Fig 5

MacVisit: Ji En Nickel

Ji En Nickel financial data (Rmb m)

Income statement
Revenue
Cost of Goods Sold
Gross Profit
Sales & marketing
Admin
EBIT
Net Interest Income/Expen
Other non-Op
Pre Tax Profit
Tax Expenses
Net Profit
Net profit attr. to shareholder
EPS

2010
2250
1579
670
30
353
288
182
-17
122
39
83
107
0.14

2011
2793
2287
505
41
226
239
298
-43
-17
34
-51
32
0.04

2012
2496
2207
289
38
240
11
299
-233
-55
90
-146
-21
-0.03

2013
2369
1870
499
37
277
185
295
-138
27
4
24
99
0.12

Income statement
4Q13
1Q14
2Q14
3Q14
Revenue
1015
408
1016
986
Cost of Goods Sold
736
299
849
686
Gross Profit
279
109
167
300
Sales & marketing
10
5
56
57
Admin
132
47
107
95
EBIT
137
57
4
148
Net Interest Income/Expen
159
57
17
205
Other non-Op
-127
6
26
-16
Pre Tax Profit
105
-6
-38
-41
Tax Expenses
-5
9
-31
-1
Net Profit
111
-15
-7
-40
Net profit attr. to shareholder
134
1
2
-18
EPS
0.16
0.002
0.003 -0.025

Cash Flow Statement

Net Income
Chgs in A/R
Chgs in Inventory
Chgs in A/P
Operating Cashflow
S-T investment
Sale of fixed asset
Capex
Investing Cashflow
Dividend
Chgs in debt
Financing Cashing Flow
Exchange Influence
Change in Cashflow
Free cash flow

2010
83
-509
-598
86
-518
0
1
1299
-1423
250
1899
2508
-9
558
-1817

2011
-51
-154
32
80
395
11
2426
-2428
357
3300
2047
52
66
-2031

2012
-146
400
-59
91
571
950
1
2507
-2658
737
3271
2283
-17
179
-1936

2013
24
-198
149
-437
83
2
207
1340
-379
709
2859
302
-77
-72
-1257

Balance Sheet
Cash & Equiv.
Receivables
Inventories
LT. Investments
Total Fixed Assets
Intangibles
Total Assets
Payables
Short Term Debt
Long Term Debt
Total Liabilities
Common Stocks
Minority Equity
Total S/H Equity
Total Liab & S/H Funds

2010
1431
664
1089
785
2797
522
9681
763
3661
1198
5912
3668
102
3769
9681

2011
2443
868
1047
962
2659
505
13331
1203
6034
1849
9752
3591
-12
3579
13331

2012
2939
433
1052
430
2617
543
17057
1196
7197
3293
13967
3230
-140
3090
17057

2013
5602
433
919
453
2498
525
19886
1028
8374
5328
17135
2966
-215
2750
19886

2011
24%
-17%
-162%

2012
-11%
-96%
n.a.

2013
-5%
1628%
n.a.

18.1%
8.5%
1.2%

11.6%
0.4%
-0.8%

21.1%
7.8%
4.2%

ROE
ROA
Net Debt/Equity
Payout Ratio
Payable Days
Inventory Days
Receivable Days

2010
2.9%
1.1%
93%
0%
174
248
106

2011
0.9%
0.2%
151%
0%
189
165
112

2012
-0.6%
-0.1%
234%
0%
195
172
62

2013
3.3%
0.5%
273%
42%
198
177
66

Revenue Growth
EBIT Growth
Net Profit Growth
Gross Margin
EBIT Margin
Net Profit Margin

29.8%
12.8%
4.8%

Source: Company data, Wind, Macquarie Research, November 2014

19 November 2014

Macquarie Research

MacVisit: Ji En Nickel

Important disclosures:
Recommendation definitions

Volatility index definition*

Financial definitions

Macquarie - Australia/New Zealand

Outperform return >3% in excess of benchmark return
Neutral return within 3% of benchmark return
Underperform return >3% below benchmark return

This is calculated from the volatility of historical

price movements.

All "Adjusted" data items have had the following

adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests

Benchmark return is determined by long term nominal

GDP growth plus 12 month forward market dividend
yield
Macquarie Asia/Europe
Outperform expected return >+10%
Neutral expected return from -10% to +10%
Underperform expected return <-10%
Macquarie First South - South Africa
Outperform expected return >+10%
Neutral expected return from -10% to +10%
Underperform expected return <-10%
Macquarie - Canada
Outperform return >5% in excess of benchmark return
Neutral return within 5% of benchmark return
Underperform return >5% below benchmark return
Macquarie - USA
Outperform (Buy) return >5% in excess of Russell
3000 index return
Neutral (Hold) return within 5% of Russell 3000 index
return
Underperform (Sell) return >5% below Russell 3000
index return

Very highhighest risk Stock should be

expected to move up or down 60100% in a year
investors should be aware this stock is highly
speculative.
High stock should be expected to move up or
down at least 4060% in a year investors should
be aware this stock could be speculative.
Medium stock should be expected to move up
or down at least 3040% in a year.
Lowmedium stock should be expected to
move up or down at least 2530% in a year.
Low stock should be expected to move up or
down at least 1525% in a year.
* Applicable to Asia/Australian/NZ/Canada stocks
only

EPS = adjusted net profit / efpowa*

ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).

Recommendations 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations

Recommendation proportions For quarter ending 30 September 2014

Outperform
Neutral
Underperform

AU/NZ
48.73%
33.76%
17.52%

Asia
59.90%
24.97%
15.13%

RSA
35.63%
39.08%
25.29%

USA
42.00%
52.67%
5.33%

CA
60.28%
36.17%
3.55%

EUR
42.11% (for US coverage by MCUSA, 6.09% of stocks followed are investment banking clients)
38.42% (for US coverage by MCUSA, 8.12% of stocks followed are investment banking clients)
19.47% (for US coverage by MCUSA, 0.51% of stocks followed are investment banking clients)

Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
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19 November 2014

Asia Research
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