Event: On April 28, the company published the first quarter report of 2023. 2023Q1 achieved operating income of 19.473 billion yuan, an increase of 4.84% over the previous year, and achieved net profit of 333 million yuan to the mother, an increase of 21.09% over the previous month and an increase of 6.77% over the previous year. Under the influence of the Spring Festival in the first quarter, the company's performance bucked the trend significantly. On April 24, the company released its 2022 annual report. Net profit returned to the mother in 2022 was 1,208 million yuan, +9.13% year on year, net profit after deducting non-return to the mother was 1,122 million yuan, +46.73% year on year. The overall performance was steady, moderate and positive.

The 2022 post-pandemic cycle maintained stable operations, and profitability continued to improve. In 2022, the company produced 865,000 tons of processed copper materials, -7.1% compared to the previous year, and domestic production accounted for 40.8%. In 2022, the company's gross profit of copper-processed materials was 3168 yuan/ton per ton (2,624 yuan in 2021), and the net profit per ton was 1,397 yuan/ton (1,211 yuan in 2021). The company's comprehensive gross margin was 5.60%, an increase of 0.55% over the previous year. The gross margin of copper tubes, copper bars, copper bars, copper bars and copper bars was 5.78%/5.60%/1.71%/7.03%, respectively, and +1.31/-3.52/ 0.22% year-on-year (copper-free business in 2021). Affected by many factors such as the sluggish prosperity of the domestic real estate industry and the decline in home appliance production and sales, the company's production and sales of traditional copper processed products such as copper tubes and copper bars declined slightly. At the same time, the company voluntarily abandoned some orders to improve product profitability, so that the company achieved good operating results even in the face of reduced sales volume.

Expand overseas high-profit markets, increase exports & build US production bases simultaneously. The gross margin of the company's domestic and foreign sales in 2022 was 3.66%/7.29%, respectively, and the company's export sales bucked the trend and increased 13% in 2022, effectively circumventing the highly competitive domestic market. Furthermore, the first phase of the air conditioning and refrigeration pipe project with an annual output of 60,000 tons at the company's production base in the US has entered trial operation, with a production capacity of 30,000 tons of copper pipes, and the second phase of the project strives to complete construction of 30,000 tons by the end of 2023, creating favorable conditions for the company to further develop the North American market.

Plan a total of 250,000 tons of copper foil production capacity at home and abroad to speed up the global market layout and rapidly improve the company's overall profitability. The first phase of the Gansu Hailiang high-performance copper foil project with an annual output of 150,000 tons of 50,000 tons will be fully put into operation in the first quarter of 2023, and leading customers CATL, BYD, etc. will be delivered in batches in the second quarter. The domestic Gansu project has accumulated sufficient experience. Indonesia's 100,000 ton copper foil project will be built in two phases. The first phase is scheduled to be completed from 2023 to 2025. Hailiang New Materials has accumulated some experience in copper foil technology and markets. The management team has grown rapidly and has the ability to continuously replicate and expand. The company has clarified the strategic goals for copper foil development: short-term goals: speed up the implementation of the domestic 150,000 ton production capacity plan and establish a global operation model; the medium-term goal: to become the top three in the industry in three years; long-term goal: to become the industry leader and occupy an important position in the field of new energy materials.

Investment suggestions: With the commissioning of overseas US copper pipe production bases in 2023, domestic industry clearance is accelerated. The company's profitability is expected to continue to increase, and the global distribution of copper foil will soon contribute to profit elasticity. We expect the company's net profit to its parent in 2023-2025 to be 1758/2,463/2,759 billion yuan respectively, and the corresponding PE will be 13.8/9.8/8.8 times respectively, maintaining the “buy” rating.

Risk warning: demand for air conditioning falls short of expectations; risk of falling processing costs; risk of project commissioning falling short of expectations.