New projects released production to help profit growth. In 2Q24 or a better price environment, Luoyang Molybdenum Industry deducted non-net profit of 2.09 billion yuan in 1Q24. Due to the stagnation of copper sales in 1Q23 and centralized sales in 4Q23, the year-on-month profit data fluctuated greatly. The company's gold-copper-cobalt mine in the Congo fully achieved a further increase of 16.3% and 38.0% month-on-month after delivery. At the same time, copper sales were less than copper production, which meant an expansion of copper resources that could be sold in the future. The company's main mineral products, copper/cobalt/molybdenum/tungsten/niobium 1Q24 production, all exceeded 25% of the planned annual guideline, and phosphate fertilizer production was 24% of the annual guideline. We expect the company to usher in a better copper price environment in 2Q24, mainly due to the one-sided rise in 1Q24 copper prices and the fact that the 2Q24 macro and industry environment is still warm. Based on the higher copper price forecast (up from 8,800/10,000 US dollars/ton to 9,500/11,000 US dollars/ton in 2024/25), we adjusted 24-26E net profit to 120/154/158 billion yuan (previous value: 102/129/13.2 billion yuan), maintain a “buy” and adjust the target price for H/A shares to HK$8.9 (12.8x24-25E average EPS, in line with PE average value since 2020, HK$7.5)/RMB 11.9 (compared to H (The stock premium is 47%, which is in line with the average premium since 2020, the previous value was 10.2 yuan).
Copper and cobalt production reached a higher level month-on-month. The annual increase in copper production is expected to lead the global Luoyang Molybdenum industry's 1Q24 copper-cobalt production growth of 16.3% and 38.0% month-on-month to 147,500 tons and 252,000 tons, showing that KFM's new construction project and TFM expansion project released production after full production. In particular, the KFM copper mine produced more than 14,000 tons for three consecutive months. This year, the company's copper production may have the potential to exceed guidance.
At the same time, the three TFM hybrid production lines have reached full production, ranking among the top ten copper mines and the second largest cobalt mine in the world. The Luoyang Molybdenum Industry is leading copper production of 52-570,000 tons this year, a significant increase from 420,000 tons in 2023, and may become the company that added the most copper production in the world this year. The company plans to promote the development of KFM Phase II and TFM Phase III, and strive to expand copper production to 800,000 tons within five years. We believe that Molybdenum is still one of the copper producers with the greatest potential for growth and is expected to become a global copper mining giant.
Supply and demand resonated, and copper prices began a mid-term upward trend
Copper concentrate supply has experienced multiple supply disruptions since 4Q23, including the closure of the First Quantum Panama mine, a sharp reduction in production guidelines from Britain and the US, and supply disturbances caused by the recent shortage of electricity in Zambia. The current TC/RC of 3.4 US dollars/ton (cents/lb) shows that the copper concentrate market is in a very tight state.
Starting in '25, there will be a significant decline in global copper concentrate growth, and this trend is expected to continue for 2-3 years until sufficiently high prices stimulate potential projects, which will build a solid supply-side foundation for the rise in copper prices. Meanwhile, the simultaneous recovery of global PMI since this year shows signs of improvement on the global demand side, and the traditional portion of copper demand may increase slightly. Emerging demand related to photovoltaics/wind power/new energy vehicles/energy storage/data centers will continue to have a significant impact on the expansion of copper demand. Based on the tighter relationship between copper supply and demand, we raised our 2024/25 LME copper price forecast to 9,500/11,000 US dollars/ton.
Risk warning: New projects are progressing more slowly than expected; commodity prices are lower than expected.