Core views:

The increase in copper and nickel prices combined with the release of nickel products as scheduled, and 24Q2 performance increased by more than 87% month-on-month. According to Huayou Cobalt's 2024 semi-annual performance forecast, 24H1's net profit is about 15 to 1.8 billion yuan, or -28% to -14% over the same period last year. Net profit for 24Q2 was 9.8-1.28 billion yuan, +87% to +145% month-on-month. Affected by the sharp year-on-year decline in nickel and lithium prices, 24H1's performance declined year-on-year. As upstream nickel resource development projects gradually reached production standards, compounded by rising copper and nickel prices, 24Q2 performance increased sharply from month to month.

Major products are shipped as scheduled, and global cooperation is expected to stabilize future growth. According to the company's 2023 annual report, the company shipped nearly 150,000 tons of lithium battery cathode precursors in '23, an increase of 31%; shipments of cathode materials were about 95,000 tons, up 5% year on year; shipments of cobalt products were about 410,000 tons (including contract processing and internal self-supply), up 12% year on year; and shipments of nickel products were about 126,000 tons (including contract processing business and internal self-supply), up 88% year on year. It has obtained supply agreements from companies such as Everweft Lithium Energy and Envision Power; established a strategic cooperative relationship with LG Chemical; and launched the construction of a 50,000 ton ternary precursor project in Indonesia; the above projects are expected to open up international supply channels and contribute to global market growth.

Investment in integrated mining and metallurgy is progressing smoothly, and attention is being paid to the release of nickel resources in the Indonesian region. According to the company's 2023 report, Huafei's 0.12 million-ton nickel metal-weight hydrometallurgical smelting project in Indonesia has basically reached production, Huake's 0.045 million-ton nickel-metal-weight nickel sulfate project is progressing steadily, some electric nickel projects in Quzhou and Guangxi have been completed and put into operation, and the Arcadia lithium mine project in Zimbabwe in Africa has been completed and put into operation. The focus is on the future launch of Indonesian nickel projects.

Profit forecast and investment advice: The company's 24-26 EPS is expected to be 2.19/2.30/2.41 yuan/share, corresponding to the closing price on July 10, 24, and the 24-26 PE is 11/10/10 times. Considering the company's global layout and the obvious long-term advantages of mining and metallurgy integration, referring to the company's 2024 Wind unanimously anticipated PE valuation, the company was given a 24-year PE valuation 15 times, with a corresponding reasonable value of 32.86 yuan/share, giving the company a “buy” rating.

Risk warning: The company's new production capacity construction fell short of expectations; raw material price fluctuations exceeded expectations; market demand growth fell short of expectations.