Description of the event
Incident: On April 20, Huayou Cobalt released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 66.30 billion yuan in 2023, +5.2% year-on-year, and realized net profit of 3.35 billion yuan, or -14.3% year-on-year; the company achieved revenue of 14.96 billion yuan in Q1, -21.7% year-on-year, and achieved net profit of 520 million yuan, or -49.0% year over year.
Incident reviews
The revenue of nickel products increased dramatically, with a total dividend of about 2.33 billion yuan. In 2023, the company achieved revenue of 4.190 billion yuan, or -51.1%; copper products achieved revenue of 4.89 billion yuan, +11.2%; nickel products achieved revenue of 8.92 billion yuan, +224.8%; lithium products achieved revenue of 1.31 billion yuan, -3.2% year on year; ternary precursors achieved revenue of 10.08 billion yuan, +1.5% year on year; cathode materials achieved revenue of 18.92 billion yuan, -17.0% year on year; nickel intermediates achieved revenue of 5.14 billion yuan, +89.5% year on year. In 2023, the company expanded product sales, with sales expenses of 150 million yuan, +96.2% year over year; credit impairment losses narrowed from -210 million yuan to -0.4 billion yuan, which is a reduction in bad debt losses; asset impairment losses were reduced from -1.29 billion yuan to -370 million yuan, which is a reduction in inventory price drop losses; the company's net operating cash flow was 3.49 billion yuan, +19.6% year over year; net assets were 34.28 billion yuan, +32.4% year over year. In 2023, there were many projects under construction. Fixed assets at the end of the period were 46.34 billion yuan, +76.8% year on year, and 10.82 billion yuan of projects under construction at the end of the period, -24.2% year on year.
The company plans to distribute a cash dividend of 10 yuan (tax included) to all shareholders for every 10 shares and repurchase shares in cash, with a total dividend amount of about 2.33 billion yuan.
Shipments of various products are growing steadily, and shipments of nickel products are growing rapidly. Shipments increased steadily. Shipments of three precursor precursors in '23 were 129,000 tons, +30.6% year over year, and shipments of cathode materials were 95,000 tons, +5% year over year, of which 67,000 tons of high nickel in series 8 and above were shipped, accounting for 83%; lithium cobalate shipments exceeded 13,000 tons, +32% year on year, cobalt products shipped about 410,000 tons, +12.2% year on year, nickel product shipments were about 126,000 tons, +87.8% year on year, and copper products shipped about 88,000 tons, -2.ton 1%; sales volume of lithium products was 80,000 tons, year-on-year + 104.5% The production capacity layout is progressing smoothly. The company has a production capacity of 225,000 tons of nickel intermediates. Among them, Indonesia's Huafei 120,000-ton nickel-metal-weight hydrometallurgical smelting project basically reached production at the end of the first quarter of 2024, Huayue's 60,000-ton nickel-metal-weight wet smelting project was stable and overproduced, and Huake's 45,000-ton nickel-metal-high nickel ice nickel project achieved production. The Arcadia lithium mine project in Zimbabwe in Africa was completed and put into operation, and the lithium carbonate production line of the Guangxi battery-grade lithium salt project with an annual output of 50,000 tons was completed in 24Q1.
Deepen global partnerships and strengthen the global layout of industrial integration. On the upstream resource side, the company, along with Vale and Ford Motor, jointly planned the construction of the Pomalaa high-pressure acidification process project with an annual output of 120,000 tons of nickel metal and completed the project company's share transfer; cooperated with Vale Indonesia to promote the development of Sorowako mine resources and secure the exclusive supply of low-grade limonite from the two major mines; in March, successfully completed minority equity transactions for two Indonesian mining projects, AJB and WKM, to enhance nickel ore resource reserves.
On the downstream materials side, it invested in the construction of a ternary cathode project for high-nickel power batteries in Bamo, Hungary, and obtained fixed-point supply agreements with power battery companies such as Everweft Lithium Energy and Envision Power; signed a memorandum of understanding with LG Chemical to establish a strategic cooperative relationship for the entire value chain of precursor and cathode materials, and plan to establish a joint venture for high-pressure acid immersion hydrometallurgy, refining, and precursor in Indonesia; establish a lithium salt processing joint venture in Morocco; and commence construction of a 50,000 ton ternary precursor project in Indonesia. The global project is expected to deepen the company's global integration and deep integration with the global NEV industry.
Investment advice
The company's net profit for 2024-2026 is estimated to be 38.3/48.0/ 5.64 billion yuan respectively, corresponding to the company's closing price of 29.39 yuan on May 7, and the 2024-2026 PE was 13.0\ 10.4\ 8.8, respectively. We are optimistic about the company's global integrated layout advantage, continued improvement in global competitiveness, performance elasticity brought about by the release of nickel production capacity, profit restoration, and a contrarian increase in precursor shipments. We believe that 2024 is expected to usher in a recovery in performance, covering for the first time, giving it a “buy-A” rating.
Risk warning
(1) Downstream demand falls short of expectations: The company's product shipments, profitability, and capacity layout are affected by downstream demand. If downstream demand falls short of expectations, it will affect the company's operating income and net profit; (2) Capacity release falls short of expectations: The company's performance is affected by the pace of capacity release. If the company's future production capacity construction progress falls short of expectations, it will directly affect the company's performance level. (3) Impact of raw material price fluctuations: The company's main products include nickel-cobalt-copper-lithium products, cathode materials, precursors, etc. Product profitability and prices are directly affected by changes in raw material prices. If raw material prices fluctuate greatly, the company's performance will fluctuate greatly. (4) Multinational business risk and exchange risk: The company has a large overseas production capacity, accounting for about 56.1% of overseas revenue in 2023, with multinational operating risks and exchange risks. (5) Risk of overcapacity: The cathode materials, ternary and other industries have overcapacity in the country, and the company's cathode materials and three yuan business accounts for a large share of revenue. If the industry continues to have excess capacity, or if there is excess capacity in the industry where other products are located, it will adversely affect the company's performance.