We maintain FY18e EPS at 0.3 US cents and raise FY19e EPS to 1.9 US cents (previously 1.7 US cents) due to the recovery of output. We maintain our BUY recommendation with an unchanged TP of S$0.29.
The Positives
+ CIL plant lifted production volume: As shown in Figure 1, the phenomenal recovery of sales volume was due mainly to the ramp-up of output from CIL plant which has commercially operated since May-18. 9M18 sales volume reached 21,276oz (74% of our previous fully year estimate of 28,757oz). Given the substantial improvement of production during 3Q18, we raise the full year forecast to 30,202oz (increase by 5% of our previous forecast).
+ Two new leaching pads to improve efficiency: Previously, there were three leaching pads under operation with annual ore processing capacity of 2.2mn tonnes. In 3Q18, a new leaching pad need started operation. This enables a continuously leaching process without removing processed ore out of the pad as with the older three pads. Another new pad is under construction and will commence operation in 1Q19. Each new pad has a permanent processing capacity of 3mn tonnes with capex of c.RM3mn. When these two new pads are full of processed ore, the group will need to build pads. The old three leaching pad will be restructured as tailing ponds for basic metals which the group plans to exploit in 2H19. The new pads benefit the operation by lowering costs and further improving recovery rate.
The Negatives
– Tax expenses jumped: The Pioneer Status Incentive Scheme of CMNM lapsed in Jun-18 where CMNM enjoyed 100% tax exemption on statutory income derived from the sale of gold dore bars. Without the exemption, the tax rate is 24%. At the moment, CMNM is liaising with the authorities for clarification on the tax status.
Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.
The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.
