The company's performance in the third quarter of 2023 increased month-on-month, and the profit improvement trend continued. Under the background of the sharp decline in the price of the main products, the company has achieved income growth and profitability recovery by virtue of the expansion of production and marketing scale and the expansion of the industrial chain. We maintain the company's 2023-25 homing net profit forecast of 419, 941, 1188 million yuan.
Give the company a valuation of 1.6 times PB in 2023, maintain the target price of 47 yuan, and maintain the "buy" rating.
The performance continued to improve in the third quarter, and the company's profitability recovered significantly. In the first three quarters of 2023, the company achieved operating income of 3.971 billion yuan, an increase of 8.66% over the same period last year, and a net profit of 241 million yuan, down 42.90% from the same period last year. Of which, revenue in the third quarter was 1.52 billion yuan, an increase of 57.09% over the same period last year, and a net profit of 160 million yuan, an increase of 228.11% over the same period last year and 120.15% over the previous year, the best level for a single quarter since the second quarter of 2022. The company's performance continues the trend of substantial improvement since the second quarter.
The increase in production and sales offset the fall in prices, and the company's revenue continued to grow. In the first three quarters of 2023, the prices of copper and cobalt, the company's main products, fell 5% and 40% respectively compared with the same period last year, but the company's revenue increased, indicating that the company's sales of copper and cobalt products increased significantly compared with the same period in 2022. According to the company's three-quarter report, as of September 30, 2023, the company's Ganzhou headquarters has built 20,000 tons of cobalt and 10,000 tons of nickel, while Congo Tengyuan has an annual production capacity of 40,000 tons of copper and 10,000 tons of cobalt intermediate products. The company's production capacity of copper, cobalt, nickel and other products has increased significantly compared with 2022, effectively resisting the adverse impact of falling prices on earnings.
The company's cobalt and copper wet smelting capacity continues to expand. The company announced that it plans to invest US $90 million to build the fourth phase of the cobalt and copper wet smelter in the Democratic Republic of the Congo (DRC). Upon completion of the project, it will form a scale of 10,000 tons of cobalt, 60,000 tons of copper, 200000 tons of sulfuric acid, 16500 tons of liquid sulfur dioxide, 45000 tons of alkali sulphide and 21MW/H power generation. The company expects the project to be completed and put into operation in December 2024. With the further improvement of the wet smelting capacity and supporting facilities of the company in the Democratic Republic of the Congo (DRC), the profit of the company's upstream link is expected to increase.
The company's precursor and battery recycling business is progressing smoothly. The company announced that Ganzhou Tengchi phase one phase 20,000 tons of ternary precursors and 5000 tons of cobalt tetroxide production line is expected to be trial production by the end of 2023, the company's product line will be extended from smelting to materials. The company has built a comprehensive recycling capacity of 15000 tons of battery waste and 5000 tons of lithium carbonate. Through the business of battery recycling and precursors, the company is expected to expand its advantages in the smelting field to the manufacturing field of lithium new energy materials.
Risk factors: the risk of a sharp fall in the price of cobalt and copper products; the company's new production capacity and slower-than-expected expansion; the risk of changing the technological route of battery materials.
Earnings forecast, valuation and rating: the company's performance in the third quarter of 2023 increased month-on-month, and the profit improvement trend continued.
Under the background of the sharp decline in the price of the main products, the company has achieved income growth and profitability recovery by virtue of the expansion of production and marketing scale and the expansion of the industrial chain. We maintain the estimated return net profit of the company for 2023-25 to 1.188 billion yuan, corresponding to the EPS forecast of 1.42 yuan, 3.19pm, 4.03 yuan. Using PB valuation method, the average PB of comparable companies Huayou Cobalt Industry, Hanrui Cobalt Industry and China Molybdenum in 2023 is 1.8 times (Wind consensus expectation). In view of the fact that the volume of the company's precursor business has not yet been reduced, a moderate discount based on the industry average will give the company a valuation of 1.6 times PB in 2023, maintain the target price of 47 yuan, and maintain the company's "buy" rating.