Event: The company released its 2024 semi-annual report. With 2024H1, the company achieved revenue of 30.05 billion yuan, a year-on-year decrease of 9.88%; net profit to mother was 1.671 billion yuan, a year-on-year decrease of 19.87%; net profit not attributable to mother was 1.752 billion yuan, a year-on-year decrease of 4.74%. With 2024Q2, the company achieved revenue of 15.088 billion yuan, up 5.99% year on year and 0.84% month on month; net profit to mother was 1.148 billion yuan, up 8.23% year on year and 119.81% month on month; net profit without return to mother was 1.184 billion yuan, up 40.38% year on year and 108.53% month on month, and the performance exceeded our expectations.

Volume: Upstream nickel resource development projects have gradually reached production standards, and integrated results are gradually showing. 1) Nickel: The Huafei project achieved production, and the 24H1 nickel product (electric nickel+nickel sulfate) was about 0.076 million tons, an increase of more than 40% over the previous year. Considering the impact of transportation, Huafei's production release is not fully reflected, and production of 24H2 nickel products is expected to continue to increase month-on-month; 2) Cobalt: 24H1 cobalt products shipped about 0.023 million tons (including internal self-supply), maintaining a leading position in the industry; 3) Lithium: The Arcadia lithium project in Zimbabwe is operating in an orderly manner, and the cost side is further optimized. Guangxi supports 0.05 million tons of cobalt products. The lithium carbonate production line of the million-ton battery-grade lithium salt project met production standards; 4) Precursors:

Shipments of 24H1 lithium battery cathode precursors were 0.067 million tons (including tritium precursors and cobalt tetroxide, including internal self-supply), up about 11% year over year. Mainly due to increased market share, sodium electric precursor shipments reached the 100 ton level; 5) Cathode materials: Cathode materials shipped 0.053 million tons (including internal self-supply and equity in participating companies). There was a slight year-on-year decline, but the increase was more than 20% month-on-month in the second quarter.

Price: The month-on-month increase in copper and nickel metal prices contributed to significant month-on-month growth in performance. 2024Q2, the main corresponding prices for the company's products LME copper/MB cobalt/LME nickel/lithium carbonate/nickel-cobalt lithium manganate precursors/ternary cathode materials were $9882.66 per ton, $12.93 per pound, $18681.29 per ton, 0.1059 million yuan/ton, 0.0809 million yuan/ton, 0.134 million yuan/ton, 0.134 million/ton, with changes of +15.72%/-4.19%/+11.05%/+4.23% /- 2.09%/-0.63%

Project progress: 1) On the upstream resource side, Huafei's 0.12 million-ton nickel metal-weight wet smelting project was basically completed at the end of the first quarter of 2024, and the volume continued in the second half of the year; 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 freshwater nickel high-water nickel metal-weight ice nickel project was completed in an orderly manner; the preliminary work of the Pomalaa high-pressure acid immersion smelting project was carried out in an orderly manner with Huayue and Ford Motor ; The Sorowako wet process project in collaboration with Vale is progressing in an orderly manner. 2) Downstream lithium battery material side: In Indonesia, Huaxiang's 0.05 million tons of nickel sulfate project progressed in an orderly manner, and Huaneng started construction of the 0.05 million ton per year tri-propeller project, further enhancing the synergy of the Indonesian nickel industry; in South Korea, part of the Gumi Cathode Project, which the company cooperated with LG, put into operation and entered the North American market; in Europe, the Hungarian Cathode Materials Phase I 0.025 million ton project started construction, and the company took substantial steps to advance into the European market.

Core highlights: The expansion of lithium battery material production capacity is progressing steadily, and the integrated layout is a deep moat. The production capacity of the company's upstream resource-side nickel-lithium products is expected to continue to contribute to the increase. The production capacity of precursors and cathode materials is huge, high-quality customers promote continuous volume, and Tianjin Bamo, a leader in cathode materials, further consolidates its technical advantages. Supported by deep resources and cost advantages, the company is expected to stand out in fierce competition with integrated cost advantages and technology accumulation, and growth can be expected.

Investment advice: The company's upstream resource layout is perfect, downstream lithium battery materials are expected to be rapidly released, and are deeply tied to international resources and automobile giants. Growth is uncertain and the moat is deep. We expect the company's net profit forecast for 2024-2026 to be 3.333, 4.044, and 4.912 billion yuan, based on the closing price on August 22, 2024. PE is 11X, 9X, and 7X, respectively, maintaining the company's “recommended” rating.

Risk warning: Product prices have dropped sharply, project progress has fallen short of expectations, demand has fallen short of expectations, etc.