Incident: On the evening of August 19, 2024, Huayou Cobalt announced its results for the first half of 2024, achieving operating income of 30.1 billion yuan, a year-on-year decrease of 10%, and net profit to mother of 1.67 billion yuan, a year-on-year decrease of 20% (performance forecast range of 1.5-1.8 billion yuan). 2024Q2 achieved net profit of 1.15 billion yuan, up 8% year on year and 120% month on month; net profit without return to mother was 1.18 billion yuan, up 40% year on year and 109% month on month.

Comment:

Nickel: The nickel sector accounts for 57% of net profit attributable to mother in 2024H1. Shipments of 2024H1 nickel products were about 0.076 million tons (including internal self-supply), an increase of more than 40% over the previous year. The average price of LME nickel in the first half of the year was 17,752 US dollars/ton, down 27% year on year; of these, the average price for Q2 was 18,681 US dollars/ton, up 11% month on month. 2024H1 Huayue (holding 57% of shares) achieved net profit of 0.69 billion yuan; Indonesia's Huake (holding 69.89%) net profit of 0.47 billion yuan; and Indonesia's Huafei (51%) net profit of 0.45 billion yuan, with a total net profit of 0.95 billion yuan to mother, accounting for 56.7% of net profit to mother in the first half of the year.

Lithium battery materials: Shipments of 2024H1 precursors increased by about 11% year-on-year, and shipments of cathode materials in 2024Q2 increased by more than 20% month-on-month. (1) Precursor: Shipment volume was 0.067 million tons (including ternary precursor and cobalt tetroxide, including internal self-supply), an increase of about 11% over the previous year; shipments of sodium electric precursors reached the 100 ton level. (2) Cathode materials: Shipment volume was 0.053 million tons (including internal self-supply and shareholding company equity), a slight year-on-year decline, with a month-on-month increase of more than 20% in the second quarter.

The nickel sector is progressing smoothly, and the Huafei project continues to contribute incremental profits. Huafei's 0.12 million-ton nickel-metal-weight laterite nickel ore wet smelting project reached production at the end of the first quarter of 2024; Huayue's 0.06 million-ton nickel metal-weight wet smelting project was steadily overproduced, and the SCM slurry pipeline was fully completed, further reducing MHP production costs; Huake's 0.045 million-ton nickel-high-metallicity ice nickel project was operated steadily; pre-construction preparations for the Pomalaa wet process project in cooperation with Vale and Ford Motor began in an orderly manner; Sorowako wet method in cooperation with Vale was carried out in an orderly manner; Sorowako wet method in cooperation with Vale was carried out in an orderly manner; Sorowako wet method in cooperation with Vale was carried out in an orderly manner; Sorowako wet method in cooperation with Vale was carried out in an orderly manner; Sorowako wet method in cooperation with Vale was carried out in an orderly manner; Sorowako wet method in cooperation with Vale The project progressed in an orderly manner; nickel ore resource reserves were further strengthened through participation in mining projects such as WKM.

Lithium battery materials open overseas expansion. (1) Indonesia: Huaxiang's 0.05 million tons of nickel sulfate project is progressing in an orderly manner; construction of Huaneng's 0.05 million tonne per year three-phase precursor project has started, and the lithium battery material integration model is gradually being implemented in Indonesia; (2) South Korea: Part of the production line of the Gumi Cathode Project in cooperation with LG will enter the North American market; (3) Europe: Hungary's Cathode Materials Phase I 0.025 million ton project has begun construction, taking substantial steps towards the European market.

Profit forecast, valuation and rating: Considering the decline in nickel prices since 2024, the estimated net profit forecast for 2024/2025 is 3.52/3.95 billion yuan (down 54%/64% from the previous forecast), and the 2026 forecast is 4.57 billion yuan, up 5%/12%/16% year over year. The PE corresponding to the current stock price is 11/10/9 times.

Considering that the decline in the company's stock price in the previous period already reflected a decline in performance, the company's “buy” rating was maintained.

Risk warning: The decline in nickel prices exceeded expectations; the construction of nickel and lithium battery materials projects fell short of expectations; overseas operation risks.