Event: according to the company's semi-annual report of 2022, 1H22 achieved revenue of 2.687 billion yuan, + 48.4% year-on-year; net profit of 547 million yuan, + 9.6%; and non-return net profit of 540 million yuan, + 8.8% year-on-year.

The rise in the volume and price of copper and cobalt products boosted performance growth, while inventory impairment dragged down profits. 1) Cobalt products: in terms of revenue, the revenue of 1H22 cobalt products increased by 39.8% to 1.62 billion yuan. On the one hand, the increase was due to the increase in production and sales (the output of cobalt products was + 35.5% to 4495 gold tons compared with the same period last year); on the other hand, the price of cobalt products increased by 49% and 38% respectively according to SMM,1H22 electrolytic cobalt and cobalt sulfate prices; in terms of profitability, the gross profit margin of cobalt business 1H22 was about 40.3%, which remained stable. 2) Copper products: in terms of revenue, 1H22 Copper business achieved revenue of 950 million yuan, + 62.6% compared with the same period last year. The year-on-year increase in revenue is mainly due to the gradual commissioning of 40,000 tons of Electrodeposited copper in the third phase of the Democratic Republic of the Congo. In terms of profitability, the 1H22 gross profit margin of the copper business was-16.3pct to 27.8% compared with the same period last year, which may be due to the overall unilateral decline in copper prices in the first half of the year, resulting in a scissors difference in the selling cost. The purchase price of the company's raw material copper mine is mainly based on the amount of copper contained and the LME copper price, while the LME copper price fell by more than 20% from the end of March to the end of June, taking into account the procurement cycle. The increase in the cost of raw materials in the current period may be significantly higher than the increase in selling price. 3) the impairment of assets affects the profit in stages. The impairment of 1H22's assets totaled 120 million yuan, all of which came from the inventory decline loss recorded by Q2. The impairment in inventories may be due to fluctuations in the prices of copper and cobalt products during the Q2 period (LME copper and SMM cobalt sulfate prices fell 21% and 38%, respectively).

Build a closed loop of copper and cobalt raw materials-precursors-recycling industry chain to create new growth momentum. 1) upstream copper and cobalt raw materials (Congo gold): by the end of the 21st, the company has a cobalt intermediate and electrowinning copper production capacity of 0.5 and 30,000 gold tons, which is expected to rise to 10,000 and 40,000 gold tons respectively by the end of the 22nd. After the completion of the third phase of the project in Congo, the copper production capacity of electrowinning will further increase to 60,000 tons; 2) Middle Cobalt Salt Nickel Salt (domestic): by the end of the 21st, the company has a cobalt salt production capacity of 6500 tons. And in March this year, IPO raised investment to build 13500 gold tons of cobalt salt and 10,000 gold tons of nickel salt, of which electrolytic cobalt has been sold by 2Q22, and the whole project is expected to be completed and put into production by the end of the year; 3) downstream ternary precursors (domestic): the production line of ternary precursors at the back end of the company's IPO fundraising project is expected to start in 23 years, or put into production in 24 years. 4) Terminal recovery (domestic): the company's 15000 tons of battery waste comprehensive recycling project large-scale main equipment has been installed and is expected to be put into production by the end of 22nd.

Profit forecast and investment advice: taking into account the continuous extension of the company's industrial chain, it is estimated that the net profit from 2022 to 2024 is 15.81 billion yuan, covering and giving the company an "overweight" rating for the first time.

Risk tips: downstream demand is lower than expected, product prices fluctuate, and projects under construction are not as expected.