CGN MINING(1164.HK)：FURTHER DOWNSIDE RISK SHOULD BE REDUCED WITH LARGE CONTRACT/SPOT URANIUM PRICE GAP

机构：招银国际
研究员：Wayne FUNG

　　During the post-results analyst meeting, management revealed some criteria about the new 3-year offtake agreement (2026-28) with parent company, which is expected to be confirmed in 4Q25E. In our view, CGN Mining will likely maintain the current pricing mechanism (i.e. 40% fixed price + 60% spot price) but possibly with a higher fixed price. On the other hand, management sees M&A opportunities in markets such as Africa and Central Asia, with an aim to achieve diversification. Taking into consideration of the upcoming 15% dividend withholding tax and the recent pullback of uranium price, we revise down our 2025E/26E price assumption by 18%/16% to US$75/83 per lb and earnings forecast by 28%/35%. That said, we expect the large contract/spot price spread (US$80/65 per lb in Feb) should limit the downside of the spot price. Our NPV- based TP is revised down to HK$2.18. Maintain BUY.
　　2024 results highlights. Net profit before tax in 2024 grew 46% YoY to HK$814mn (2H24: HK$490mn, +51% YoY). Net profit dropped 31% YoY HK$342mn, due to (1) one-off payment of dividend withholding tax (accrued for years) as mandated by recent changes of Kazakhstan’s tax policies; (2) the change in fair value from share swaps for Paladin Energy (PDN AU, NR), which has been well-expected due to pre-announced profit. CGN Mining proposed final dividend of HK$0.7 cents. This, together with the interim dividend of HK$0.3 cents, implies a pay-out ratio of 22%.
　　Management comments on new 3-year offtake agreement. CGN Mining revealed that the new 3-year offtake agreement with parent company will take into consideration of several factors, including (1) a fair market practice, (2) peers’ contract structure, and (3) shareholder’s expectation. The agreement is expected to be confirmed in 4Q25E.
　　We expect unit cost will further increase in 2025E but will ease in 2026E. Kazakhstan’s mineral extraction tax (MET) rate will be increased to 9% in 2025 from 6% in 2024. This, together with the raw materials and labour cost inflation, will further push unit production cost higher in 2025E, in our view. That said, given that MET will be calculated based on output level in 2026E, the mines (except Central Mynkuduk) will see a reduction of MET rate. This should help stabilize the unit cost in 2026E.