Zijin Gold International posted solid 1Q26 earnings; Overweight rating maintained

Overview

This report is Morgan Stanley's review of Zijin Gold International's (2259.HK) 1Q26 results. The company reported 1Q26 net profit of US$801mn, improving from US$696mn in 4Q25; results were below Morgan Stanley's forecast but above market consensus expectations. The report believes that quarter-over-quarter declines in production and sales volumes, together with a rise in AISC, weighed on profit, but the overall investment thesis is largely unchanged.

Core views

The core view is that 1Q26 earnings performance remained solid. Higher gold prices supported revenue and earnings, but quarter-over-quarter changes in production, sales volumes, and costs limited profit elasticity. Morgan Stanley maintains its Overweight rating and HKS215.00 target price, believing the stock still has potential to outperform the average of its covered industry universe on a relative basis over the next 12-18 months.

Analysis framework

The report mainly uses a combination of earnings breakdown and valuation frameworks: it first compares key operating indicators such as 1Q26 net profit, gold production, revenue, AISC, tax rate, and minority interest ratio, and then combines Morgan Stanley ModelWare forecasts with a DCF valuation model to assess the target price, upside potential, and key risks.

Methodology notes

• Valuation modelDCF

  Discounted cash flow valuation

  The report discloses that the base case uses a DCF model. Zijin Gold International's valuation assumptions include an 8.0% WACC, 12.1% cost of equity, 1.4 beta, 3.7% risk-free rate, 6.0% equity risk premium, and assume revenue growth of 3% per year after the explicit forecast period.

• Institutional modelMorgan Stanley ModelWare

  Morgan Stanley internal forecasting framework

  Most financial metrics in the report are based on Morgan Stanley ModelWare, while some consensus data are separately presented using consensus methodology.

• Rating systemMorgan Stanley Stock Rating

  Relative rating system

  Overweight means the analyst expects the stock's risk-adjusted total return over the next 12-18 months to exceed the average level of its covered industry universe, and it is not equivalent to a traditional Buy rating.

Asset mapping & comparison

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

• Zijin Gold International (2259.HK)

  Core covered name

  Strengths

  Benefits from rising gold prices, central bank demand, geopolitical risk, and gold demand driven by de-dollarization; project ramp-up and undeveloped resources may also bring upside to production.

  Weaknesses

  1Q26 production declined quarter over quarter, and revenue growth was significantly lower than the increase in gold prices, indicating that sales volumes may be under pressure; AISC rose faster than expected.

  Comparison

  Net profit was above market consensus expectations but below Morgan Stanley's forecast, while the investment thesis and the direction of consensus EPS over the next 12 months are broadly unchanged.

  Risks

  If gold prices weaken due to a stronger US dollar, project execution falls short of expectations, or geopolitical risks cause production disruptions, earnings and valuation could come under pressure.

Key data

• 1Q26 net profitUS$801mnUS$696mn in 4Q25; below Morgan Stanley's forecast but above consensus expectations.
• 1Q26 gold production13.46tPorgera contributed 601kg; 4Q25 was 14.82t, of which Porgera contributed 733kg.
• 1Q26 revenueUS$2.06bnUp 4% quarter over quarter, while gold prices rose 17% quarter over quarter during the same period; the report judges that sales volumes may have declined quarter over quarter.
• 1Q26 AISCUS$1,638/ozAbove FY25's US$1,501/oz, mainly due to higher royalties driven by rising gold prices.
• Effective tax rate26.8%Down 1.5 percentage points year over year and down 10.5 percentage points quarter over quarter.
• Minority interest ratio12.8%Down 1.4 percentage points year over year and up 2.4 percentage points quarter over quarter.
• RatingOverweightIndustry view is Attractive.
• Target priceHKS215.0023% upside versus the Apr 21, 2026 closing price of HKS175.00.
• FY26e EPSUS$1.32The table shows the forecast for fiscal year 12/26e.
• FY26e revenueUS$9,188mnThe table shows the forecast for fiscal year 12/26e.

Impact & implications

The report summarizes the impact on the investment thesis as broadly unchanged: although earnings were below Morgan Stanley's forecast, they were above consensus expectations, and both the target price and rating remain unchanged. For investors, the key debate is whether the high gold price environment can continue to offset production volatility, weaker sales volumes, and upward cost pressure.

Risks

• Gold prices weaken against a backdrop of a stronger US dollar.
• Project execution falls short of expectations, affecting production ramp-up and resource release.
• Geopolitical risks lead to production disruptions.
• AISC continues to rise, especially if royalty increases driven by higher gold prices exceed expectations.
• Seasonal factors such as weather continue to affect quarterly production and sales volumes.

What to watch

• Whether gold production in subsequent quarters recovers from 13.46 tonnes in 1Q26.
• Porgera's contribution volume and project ramp-up progress.
• Gold price trends and the sustainability of central bank gold buying, geopolitical risk, and de-dollarization demand.
• Whether AISC and royalty costs continue to come in above expectations.
• Whether changes in sales volumes continue to weigh on revenue and profit elasticity.
• Whether market consensus EPS is revised up or down over the next 12 months.