Event: The company published its semi-annual report for 2023. Due to the slight influence of the NEV and consumer electronics sectors, Tengyuan Cobalt had revenue of 2,451 billion yuan in the first half of the year, down 8.77% from the previous year. Among them, cobalt revenue was 1,074 million dollars. Affected by the sharp drop in cobalt prices, the gross profit margin was 2.92%, a decrease of 37.39 pct. Copper revenue was 1,269 million, gross profit margin 29.68%, a slight increase of 1.86 pct. The company's copper product production increased by more than 40%, and the production and sales of cobalt products increased by more than 70% and 90% respectively. Affected by prices, the company's net profit to the parent was 80.8 million yuan, a year-on-year decrease of 85.24%. The company's three-fee ratio continues to decrease, reflecting the results of refined management in recent years.

Demand has recovered and prices have rebounded, and companies with favorable policies have begun a turn-over battle. Domestic production and sales of new energy vehicles increased by more than 40% year-on-year in the first half of the year. As favorable national policies continued, demand for upstream metals remained rigid. In the same period, consumption of 3C digital products was hit hard by the poor economic environment. In July, the state promulgated “Certain Measures to Promote Consumption of Electronic Products”. According to IDC, the digital industry will usher in a turning point in the second half of the year. The price of cobalt once fell below the cost of mining in June. Currently, the supply of resources is sufficient. It will continue to be at the bottom in the short term, and the recovery in demand will drive the price of cobalt to slowly rise.

Focus on resource recovery in the lithium battery materials industry chain, and fund-raising projects open up new growth points. In the first half of the year, the company's copper and cobalt production and sales completed the half-year results. The annual production and sales targets were 16,600 tons of cobalt and 40,000 tons of copper.

The Tengyuan headquarters has put into operation 15,000 tons of battery waste recycling. At the end of the first phase of the fundraising project, 20,000 tons of three yuan and 50,000 tons of quadcobalt will be tested. At the end of phase III in the Congo, the production capacity of 60,000 tons of copper will be reached. Obtaining additional metal resources, planning the secondary recycling of new energy vehicles in advance under the scrap wave, plus the company's product quality and manufacturing advantages, there is reason to look forward to the company's future Phoenix Nirvana.

Investment advice

National policy protection demand supports the bottom of cobalt prices. In the context of “carbon neutrality”, the green economy transformation will continue to drive copper prices. The company will continue to increase production, sales, and new energy layout. We predict that in 2023-2025, the company's revenue will be 68.7/80.0/9.56 billion yuan, and the year-on-year growth rate will be 43.1% /16.4%/19.4%, respectively; the corresponding net profit will be 6.6/12.2/2.04 billion yuan, and the year-on-year growth rate is 138.6%/86.4%/66.7%, respectively. The current stock price corresponding to PE is 16X/9X /5X, maintaining the “buy” rating.