Citi raises Zhaojin Mining's target price to HK$41.4/share and maintains Buy

Overview

This report is Citi's model update on Zhaojin Mining. After incorporating FY25 and 1Q26 results, the company's latest guidance, and updated gold price forecasts from Citi's commodities team, the report raises Zhaojin Mining's earnings forecasts and lifts the target price from HK$37.5/share to HK$41.4/share, while maintaining a Buy rating.

Core views

The core views include: in the short term, gold prices may be pressured by the situation in the Strait of Hormuz, rate hike expectations, rising real interest rates, and a stronger U.S. dollar; however, if geopolitical tensions ease, gold's macro headwinds are expected to weaken and form a price floor. At the company level, Zhaojin Mining, as a gold mining company, is expected to benefit from production growth over the next few years, especially with Haiyu Mine expected to commence production in 2027E.

Analysis framework

The report uses an analytical framework combining earnings model updates, commodity price assumptions, earnings forecast revisions, and DCF valuation. Citi incorporates company guidance, gold price forecasts, cost assumptions, and self-produced gold output assumptions into the model, and derives the target net present value per share through DCF.

Methodology notes

• Valuation methodDCF valuation

  Estimate the company's net present value using long-term gold prices, terminal growth rate, and WACC.

  The target price of HK$41.40/share is based on DCF valuation, with a long-term gold price assumption of US$3,600/oz, a terminal growth rate of 2%, and WACC of 7.2%.

• Earnings forecastEarnings forecast revision

  Adjust future earnings based on FY25 and 1Q26 results, company guidance, and commodity price forecasts.

  Citi raises its 2026/27E earnings forecasts by 14%/54%, respectively, and adds a new 2028E earnings forecast.

• Sensitivity analysisGold price sensitivity analysis

  Assess the impact of changes in gold prices on Zhaojin Mining's net profit.

  The report presents the sensitivity of 2026E and 2027E net profit to gold prices, using the commodities team's base-case gold price as the core scenario.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zhaojin Mining (01818.HK)

  The covered name and core recommended asset in the report.

  Strengths

  Pure gold mining exposure, future production growth, potentially low-cost contribution from Haiyu Mine, and a higher target price.

  Weaknesses

  The short-term share price is highly affected by gold prices and macro interest rate expectations, while self-produced gold output and cost assumptions face pressure.

  Comparison

  Citi's 2026/27/28E earnings forecasts are 6% below, 4% below, and 4% above Bloomberg consensus, respectively.

  Risks

  Gold prices below expectations, costs above model assumptions, capital expenditure overruns or delays in production commencement at Haiyu Mine.

• Gold

  The main commodity price driver of Zhaojin Mining's earnings and valuation.

  Strengths

  Citi expects average gold prices to remain high in 2026E and 2027E, and macro headwinds may ease after geopolitical tensions moderate.

  Weaknesses

  In the short term, it is pressured by inflation concerns triggered by the Strait of Hormuz deadlock, rate hike expectations, rising real interest rates, and a stronger U.S. dollar.

  Comparison

  The report uses the commodities team's base-case gold price as the core scenario and discusses sensitivity to scenarios above or below the base case.

  Risks

  If real interest rates and the U.S. dollar continue to strengthen, or if gold prices fall below base-case assumptions, Zhaojin Mining's earnings and valuation will come under pressure.

Key data

• Target priceHK$41.4/shareRaised from HK$37.5/share, based on DCF valuation.
• RatingBuyCiti maintains a Buy rating.
• 2026E earnings forecastRMB4,839 millionRaised by 14% versus the previous forecast.
• 2027E earnings forecastRMB6,488 millionRaised by 54% versus the previous forecast.
• 2028E earnings forecastRMB9,956 millionNew forecast added in this report.
• Citi gold average price forecast2026E US$4,775/oz; 2027E US$5,000/ozFrom Citi's commodities team forecast.
• Key DCF assumptionsLong-term gold price US$3,600/oz; terminal growth rate 2%; WACC 7.2%WACC assumptions include a 3% risk-free rate, 0.8 beta, and 7.5% market risk premium.
• Implied valuation from target price2026E P/E 26.4x; 2027E P/E 19.7xBased on the target price of HK$41.4/share.
• Haiyu Mine capacity15-20 tonnes/yearExpected to commence production in 2027E.

Impact & implications

The report has a positive medium- to long-term implication for Zhaojin Mining's share price: earnings upgrades, the higher target price, and production contribution from Haiyu Mine reinforce the Buy thesis. However, in the short term, the share price may still be affected by a pullback in gold prices, concerns over rate hikes, a stronger U.S. dollar, and sentiment related to mining accidents.

Risks

• Gold prices come in below Citi's expectations.
• Production costs rise above model assumptions.
• Capital expenditure overruns or delays in production commencement at Haiyu Mine.
• Rate hike expectations, rising real interest rates, and a stronger U.S. dollar pressure gold prices.
• Recent mining accidents may bring short-term sentiment and operational risks.

What to watch

• Whether the situation in the Strait of Hormuz eases and whether gold prices bottom out.
• Federal Reserve rate hike expectations, real interest rates, and U.S. dollar trends.
• Progress of Haiyu Mine's 2027E production commencement and capital expenditure control.
• Changes in self-produced gold output, all-in costs, and subsequent company guidance.
• Whether differences between 2026E to 2028E earnings forecasts and market consensus narrow.