The company is a leading company in the cobalt industry. With core technologies such as leading smelting process, self-made key equipment and resource disposal of three wastes, the company has outstanding cost advantages. The expansion of cobalt and copper capacity superimposed the business extension of battery recycling and precursor production to ensure the long-term growth of the company. It is estimated that the return net profit of the company from 2021 to 2023 will be 1.452.712 billion yuan respectively, and the corresponding EPS forecast will be 6.80 RMB 9.46pm 11.96 yuan per share respectively. Give the company 17 times PE in 2022, corresponding to the target price of 116yuan, covering and giving a "buy" rating for the first time.

The company is a leading company in the domestic cobalt industry and has a perfect industrial chain layout. The company has formally put into production of cobalt salt series products since 2005, and has experienced more than ten years of deep ploughing and precipitation in the field of cobalt salt products. In 2016, the company entered the Democratic Republic of the Congo (DRC) to distribute copper and cobalt raw materials, and in 2020, the company completed the relocation of its production base. The development of new energy materials business is accelerated. In March 2022, the company listed on the gem of the Shenzhen Stock Exchange and raised 5.2 billion yuan. In the first half of 2022, the company achieved a net profit of 547 million yuan, making the best performance in history.

There is effective support at the bottom of cobalt and copper prices, and the trend of integration of ternary precursor industry has been established. Since June 2022, the prices of cobalt and copper have fallen sharply. Benefiting from the growth in demand in areas such as power batteries, consumer electronics and alloys, we expect cobalt consumption to maintain a rapid growth rate of more than 10 per cent in 2022-2025. The resource dependence effect of cobalt is strong, and the purchase price of raw materials remains strong to provide bottom support for cobalt price. Copper as a key metal in energy transformation, the resource constraint effect is growing, and the long-term price trend is expected to remain unchanged. EVTank predicts that the scale of China's waste lithium battery recycling market is expected to grow to 100 billion yuan in 2026, and the layout of recycling business to build an integrated industrial chain has become an important trend in the development of ternary precursor industry.

The processing cost of the company's cobalt and copper products is at the lowest level in the industry, and the increase in production capacity leads to a steady expansion of profits. With the core technologies such as leading smelting process, self-made key equipment and resource disposal of the three wastes, the production cost of the company's cobalt products is 20% lower than the industry average, and the average processing cost of cobalt and copper products is more than 10% lower than that of the comparable company. the cost advantage is outstanding. The company currently has an annual production capacity of 6500 tons / 20,000 tons of cobalt / copper, and is expected to expand to 20,000 tons / 40,000 tons by the end of 2022, and the long-term production capacity of copper is planned to reach 60,000 tons / year. The substantial increase in cobalt and copper production capacity and the rebound in prices bottoming out are expected to drive the company's performance steadily upward.

The leading level of technology helps the company's industrial chain extend to battery recycling and precursors. While expanding the capacity of cobalt and copper, the company has planned a comprehensive recovery workshop of 15,000 tons / year of battery waste and a production capacity of 40,000 tons / year ternary precursors. Waste battery recycling and precursor production have a strong synergy with the company's existing business, and the company's leading cost advantage in the field of cobalt products is expected to expand to battery recycling and precursor production. In August 2022, the company issued a five-year strategic plan, proposing to actively intervene in the field of energy metals such as nickel and lithium, upstream mine resources and secondary resource recovery, and become the most competitive enterprise in the field of new energy materials.

Risk factors: the risk of performance fluctuation caused by the fluctuation of cobalt and copper prices; the risk of changing the technological route of battery materials; the risk that the expansion of the company's ternary precursors and waste battery recycling business is not as expected; the risk of the company operating abroad; the risk that the company's capacity expansion is not as expected.

Investment suggestion: the company is a leader in the cobalt industry, mastering the core technology gives the company a significant cost advantage, and is expected to expand this advantage to battery recycling and precursor production business, helping the company to achieve industrial chain extension and long-term profit growth. It is estimated that the return net profit of the company from 2021 to 2023 will be 1.452.712 billion yuan respectively, and the corresponding EPS forecast will be 6.80 RMB 9.46pm 11.96 yuan per share respectively. With reference to the average valuation levels of comparable companies in the cobalt industry, including Huayou Cobalt, Hanrui Cobalt, Greentree and Shengtun Mining (the 2022 average is 18 times), and considering that the company's precursors and other businesses are in their infancy, the industry average level is moderately reduced, giving the company a valuation of 17 times PE in 2022, corresponding to the target price of 116RMB, covering and giving a "buy" rating for the first time.