The company's performance fell sharply in the third quarter of 2023 compared with the same period last year, mainly because the performance in the third quarter of last year was significantly higher than usual due to futures earnings. Excluding the above factors, the company's performance remained high in the third quarter. In the future, the company is expected to benefit from copper prices and increased earnings from the TC/RC upside as well as a jump in resources from the group's asset injection.

We are optimistic about the allocation value of the company, maintain the company's target price of 16 yuan per share in 2023, and maintain the company's "buy" rating.

Results in the third quarter of 2023 actually remained high. In the first three quarters of 2023, the company achieved revenue of 110.56 billion yuan, an increase of 12.8% over the same period last year, and a net profit of 1.52 billion yuan, up 2.5% from the same period last year. In the third quarter of 2023, the company achieved revenue of 39.76 billion yuan, an increase of 18.2% over the same period last year, down 2.4% from the previous year, and a net profit of 510 million yuan, down 35.3% from the same period last year and 4.5% from the previous year. The company's third-quarter results seem to have dropped sharply compared with the same period last year, but in fact it is mainly affected by the high base effect of the same period last year. According to the company announcement, the performance in the third quarter of 2022 is closely related to futures earnings, in addition to operating factors such as production and marketing and higher TC/RC. The company adopts a hedging strategy, following the futures and spot corresponding hedging, due to the current time mismatch, part of the futures profits are reflected in the third quarter, resulting in the company's performance in the third quarter of 2022 is much higher than the usual level. Excluding the quarterly results, the company's quarterly results are at an all-time high.

Sulphuric acid prices picked up, TC/RC remained high, and the company's overall gross profit margin rose month-on-month. In the third quarter of 2023, the copper concentrate TC/RC reached 92.94 US dollars / dry ton and 9.29 cents / lb, respectively + 20.9% / month-on-month ratio of 6.1%; copper price was 69155 yuan / ton, year-on-year / month-on-month ratio + 13.0% / month-on-month 2.4%; sulfuric acid price was 233.0 yuan / ton, year-on-year / month-on-month ratio-50% / month-on-month 23.3%, showing significant signs of recovery. Thanks to this, the company's gross sales margin reached 3.99% in the third quarter, down 0.85pcts from last year, but up 0.57pcts from a month earlier.

So far in the fourth quarter (as of October 27), the TC/RC of copper concentrate reached 87.95 US dollars / dry ton and 88.0 cents / lb, which were flat / 5.4% year-on-year / month-on-month, respectively; copper price was 66831 yuan / ton, year-on-year / month-on-month + 1.7% ram 3.4%; sulfuric acid price reached 307.0 yuan / ton, year-on-year / month-on-month + 8.3% cash 31.8%. TC/RC remains high, sulphuric acid prices pick up significantly, and the company's fourth-quarter results are expected to remain strong.

The reduction of cost and efficiency continued to deepen, and the rate of multi-item expenses continued to decline. The company continues to deepen the cost "five modernizations" closed-loop management, throughout the use of cost control methods, the cost level has dropped significantly. In the first three quarters of 2023, the company's sales / management / R & D / financial expenses were 1.84%, 6.99% and 2.61 million yuan, respectively, with year-on-year changes + 17.9%, 23.9%, 33.8%, 33.8% and 19.1%, respectively, and the expense rates were 0.17%, 0.63%, 0.24% and 0.41%, respectively, with year-on-year changes + 0.01/-0.30/+0.04/-0.16pcts. Both administrative and financial expenses and expense rates have declined significantly. Accordingly, the overall cost and expense rate of the company decreased by 9.9% and 0.26pcts to 1.144 billion yuan and 1.03%, respectively.

As the only copper listing platform of Chinalco Group, the company has the advantage of resources. Chinalco currently holds the Toromocho copper project in Peru, the exploration rights in the Xizang Tiegelongnan mining area and the stake in Liangshan Mining.

The copper resource reserves of the Toromocho project are 10 million tons, and the copper concentrate has a copper production capacity of 300000 tons. Chinalco is pushing ahead with the Toromocho expansion project, which is expected to increase current production capacity by 20 per cent, according to Reuters.

The predicted prospective resources in the Tiegelongnan mining area are more than 20 million tons. According to the electronic tendering and bidding platform of Chinalco Group, the tender for the preliminary investigation project of the first phase of Xizang Jinlong Copper Mine has been completed. According to Chinanews.com, how can Huili, the youngest county-level city in Sichuan, explore a new path for development? (by Yue Yitong and Tang Yan), at present, Liangshan Mining has a mining capacity of 1.65 million tons per year and a mineral processing capacity of 6500 tons per day. The prospect of resource injection into the company is worth looking forward to.

Risk factors: the risk of TC/RC falling short of expectations, the risk of product prices falling short of expectations, the risk of higher-than-expected growth of refined copper supply, the risk of lower-than-expected demand for refined copper, and the risk that progress in asset injection is not as expected.

Earnings forecast, valuation and rating: the company's performance declined significantly in the third quarter of 2023 compared with the same period last year, mainly because the performance in the third quarter of last year was significantly higher than usual, excluding the above factors, the company's performance remained high in the third quarter. In the future, the company is expected to benefit from copper prices and increased earnings from the TC/RC upside as well as a jump in resources from the group's asset injection. We maintain the company's 2023-25 homing net profit forecast of 2.399, 2.445, 2.527 billion yuan, corresponding to the EPS forecast of 1.20, 1.22, 1.26. We choose Jiangxi Copper, Tongling Nonferrous, Zijin Mining Group and China Molybdenum as comparable companies in the copper industry. At present, the average Wind of the above comparable companies is expected to be 11.9 times the average PE in 2023. We believe that as the only copper listing platform of Chinalco Group, the company has the expectation of injection of world-class projects, and there is significant room for copper resource reserves and production increments in the future, so it should enjoy a valuation premium beyond the industry, so it gives the company a valuation of 13 times PE in 2023, corresponding to a target price of 16 yuan per share. Maintain the company's "buy" rating.