In 2022, the company's net profit to the parent increased 179% year-on-year. In 2022, revenue was 134.9 billion yuan (+6.2%), net profit of 18.09 yuan (+178.6%), net profit of non-return to the mother was 1,811 million yuan (+395%), and net cash flow from operating activities was 6.076 billion yuan (+19.9%). Among them, the revenue for the single quarter of 2022/Q4 was 36.9 billion yuan (+8.2%), net profit of the mother was 327 million yuan (-58.3%), and net profit of the non-return mother was 378 million yuan (+308%). The company's profit surged in 2022 mainly due to increased copper smelting profits and seizing high prices to price its own copper concentrates in a timely manner.

Provision for impairment of various assets was calculated at 591 million yuan. In 2022, credit impairment losses were calculated by 1.33 million yuan, inventory price declines were calculated at 440 million yuan, fixed asset impairment was 150 million yuan, and total profit of consolidated statements for 2022 was reduced by 591 million yuan.

The company's profit growth mainly comes from copper smelting and futures preservation earnings. In 2022, the company's gross profit was 6.53 billion yuan, an increase of 1.36 billion yuan over the previous year. Among them, the cathode copper section increased 1.28 billion yuan, which was the main profit growth point; gross profit of precious metals fell 200 million yuan year on year, and gross profit of sulfuric acid increased 120 million yuan year on year. Copper production from the company's consolidated mines fell from 75,700 tons in 2021 to 62,600 tons in 2022.

In the smelting process, the company also produced 1,349 million tons of cathode copper, which is almost the same as in 2021. Different concentrate processing fee scales: The average weekly copper concentrate TC price in the Shanghai Nonferrous Metals Network in 2022 was 77.6 US dollars/ton, and in 2021 it was about 46.4 US dollars/ton. There was a significant increase in spot processing fees for copper concentrates; the annual processing fee for long orders increased by 9 US dollars/ton. According to rough estimates, for every 10 US dollars/ton increase in concentrate processing costs and an increase of 400 yuan/ton in smelting profits, the company produces and sells about 1.34 million tons of cathode copper per year, and the profit increase brought about by the increase in processing fees is 540 million yuan.

Risk warning: Copper production in the mine has declined, and processing fees for copper concentrates are lower than expected.

Investment advice: Maintain an “increase in holdings” rating.

Let's assume that the spot price of copper including tax in 2023-2025 is 68,000 yuan/ton, the long TC of copper concentrate is 84 US dollars/ton, the price of sulfuric acid is 300 yuan/ton, the price of gold is 425 yuan/gram, and the price of silver is 5,200 yuan/kg. Due to the assumed increase in copper prices, precious metals prices, and the increase in copper concentrate processing fees, we raised the company's profit forecast. It is estimated that 2023-2025 net profit to the mother is 2155/22.10/2,322 billion yuan (the original forecast value for 2023-2024 is 1,292/1,336 billion yuan respectively), with a year-on-year growth rate of 19.1/2.6/ 5.0%; diluted EPS is 1.08/1.10/1.16 yuan, respectively. The current stock price of PE corresponds to 12.3/12.0/11.5x, respectively. Taking advantage of the boom cycle in the copper industry in recent years, the company has improved asset quality and strong cash flow. It is expected that this year it will continue to benefit from rising copper concentrate processing fees and maintain its “increase in holdings” rating.