Incident: The company disclosed its 2022 semi-annual report. It achieved revenue of 38,043 billion yuan in the first half of 2022, +14.92% year on year, achieved net profit of 651 million yuan, +4.72% year on year, and achieved net profit of 563 million yuan after deducting non-return to the mother, +18.87% year on year.

The rise in copper prices, combined with the growth of overseas business, helped the company improve its performance, and the same increase in the high-end product sector boosted the company's profitability. 1) The rise in copper prices and overseas business growth offset some of the decline in production, and the company still achieved performance growth. In the first half of 2022, the company was affected by the epidemic in East China in the second quarter. The overall production of processed copper products was 464,400 tons, a slight decrease of 3.2% over the previous year, but copper prices rose 7.7% year on year, and overseas business increased 26.05% year on year. It is expected that with the easing of the domestic epidemic and the release of additional production capacity, the company's production and sales volume in the second half of the year are expected to improve month-on-month, and annual performance growth is worth looking forward to. 2) The proportion of high-end products has increased, and the company's profitability has continued to improve. Despite a slight decline in overall production, sales of high-end products in the company's downstream emerging application fields such as solar photovoltaic inverters, air energy heat pumps, heat pipe radiators, gas wall-mounted furnaces, semiconductor targets, energy storage and temperature control all increased by more than 30% year-on-year, which in turn led to the company's gross margin of copper pipes and copper bars increasing by 0.61 pct and 1.72 pct to 5.55% and 7.10% respectively. The overall gross margin of the company's copper processing business also increased 0.71 pct to 5.61%. In the future, as the company's 30,000 tons/year precision copper tube and 150,000 tons/year lithium battery copper foil projects are put into production (the gross margin of copper foil is high; for example, the gross margin of copper foil for NORD shares and copper crown copper foil in 2021 is 25% and 17% respectively), it is expected that the company's profitability will continue to increase.

Lithium battery copper foil projects are rapidly being put into operation one after another, precision copper tube projects are deepening overseas layout, and the company can be expected to grow in the future. 1) The lithium battery copper foil project is expected to be put into production capacity of 25,000 tons one after another during the year. The company started a 150,000 tons/year lithium battery copper foil project in November 2021. The project progressed rapidly. In June 2022, the first production line began trial production. The main products were 6,8μm lithium battery copper foil. It is expected that the construction of 12 production lines will be completed in the second half of 2022, achieving a production capacity of 25,000 tons, and the trial production of 4.5 μm lithium battery copper foil will be started simultaneously. Production capacity is expected to expand in an orderly manner in 2022-2025. 2) The 60,000 tons/year precision copper tube project will put into operation 30,000 tons. The US project has entered the equipment installation and commissioning stage. It is expected that 30,000 tons will be put into operation within the year, and the high-end product layout overseas will be further deepened.

Profit forecast and investment advice: Expected net profit of $1,39/2.07/2.77 billion for 2022-2024. Considering the expansion of production capacity and optimization of the product structure, the company was given an “increase in holdings” rating for the first time.

Risk warning: downstream demand falls short of expectations, product prices fluctuate, and projects under construction fall short of expectations