The company is a leading enterprise in the domestic copper industry. In the future, it is expected to benefit from increased profits brought about by rising copper prices and TC/RC, and resource growth brought about by the Group's asset injection. The net profit attributable to the company in 2022-2024 is estimated to be 17.7/24.0/2.45 billion yuan respectively. The corresponding EPS forecast is 0.88/1.20/1.22 yuan/share, respectively. The latest stock price corresponding to PE is 14.0/10.3/10.1 times, respectively. The company was given 13 times the PE valuation in 2023, and the corresponding target price was about 16 yuan/share, covering and giving a “buy” rating for the first time.

A leading enterprise in the domestic copper industry, and its business performance has increased dramatically. Yunnan Copper was founded in 1998 and is the only copper industry listing platform under China Aluminum Group and China Copper. The company's business involves exploration, sampling, smelting, etc. of copper and related non-ferrous metals. After years of development, the company has become a leading enterprise in the domestic copper industry. In 2021, the company produced 1,347 million tons of cathode copper and 76,000 tons of copper concentrate. With the rise in copper prices, TC/RC and sulfuric acid prices, combined with the reduction of various expenses, the company's operating performance increased dramatically. According to the company's performance forecast, the company expects to achieve net profit of 15.5 to 1.85 billion yuan to 1.85 billion yuan for the full year of 2022, an increase of 139% to 185% over the previous year.

In 2023-2025, refined copper is expected to shift from a tight balance to a gap, and copper prices are expected to rise. Exploration results are lackluster, and there is a trend of declining grades. Currently, global copper companies' capital expenditure is low, and copper ore supply has been rigidly limited for a long time. There are frequent disturbances in copper mines around the world. Production of many major copper mines was cut and stopped, and short-term copper ore supply increases fell short of expectations. As a key metal in the energy transition, there is a high degree of certainty that long-term copper demand will increase.

The rising growth rate of domestic power investment is expected to drive up copper demand in the short term. We forecast the global balance of refined copper supply and demand in 2023-2025 to +6.7/-10.2/-697,000 tons, and the LME copper price of 9000/10000/11,000 US dollars/ton.

The scale of smelting capacity has significant advantages and is expected to benefit from the rise in TC/RC. As of the first half of 2022, the company's cathode copper production capacity reached 1.3 million tons, ranking third in China and ranked first in the world. Since the company's cathode copper uses copper concentrate to produce a high proportion of copper concentrate, its sulfuric acid to cathode copper production ratio is among the highest in the industry. The company's by-product precious metals production is also leading, with gold as a by-product accounting for 25.5% of the country's production. The sulfuric acid by-product and precious metals business can help increase the company's profitability. Starting in 2022, the copper concentrate TC/RC bottomed out, which is expected to drive the profit level of the company's smelting business further up from the current level.

Diqing's non-ferrous stock holdings were increased, and the company's copper resources increased significantly. As of December 2022, all 38.23% of Diqing Nonferrous Metals shares held by Yuntong Group have been transferred. Diqing's main non-ferrous metals asset, the Pulang Copper Mine, holds 804 million tons of ore, 2,611,500 tons of copper metal, with an average grade of 0.33%. After the increase in holdings, the amount of copper metal held by the company increased from 2.06 million tons to 3.204 million tons, an increase of 45.3%. This increase in ownership helps provide a solid resource guarantee for the company's copper concentrate production.

As the only listing platform under China Alcoa Group, the company has resource advantages. China Alcoa Group currently holds prospecting rights for the Toromocho copper project in Peru and the Tiglonan mining area in Tibet. The Toromocho project has a copper resource reserve of 10 million tons, and the copper concentrate contains 300,000 tons of copper. More than 10 million tons of resources have been discovered in the Tiegelonan mining area. If the Toromocho project is successfully injected, the company's copper resources are expected to reach 13.56 million tons, ranking third in the country; the production of copper containing copper from Quanyi Copper Concentrate is expected to reach 300,000 tons, ranking 15th in the world. If the subsequent Tieglong South mining project is injected into the company, the company's resources and production are expected to rise further.

Risk factors: Risk that TC/RC falls short of expectations; risk that product prices fall short of expectations; risk that refined copper supply growth exceeds expectations; risk that demand for refined copper falls short of expectations; risk that asset injection progress falls short of expectations.