We expect the company to benefit from increased production capacity and stable copper and cobalt prices in the future. Profitability is expected to recover. The commissioning of precursors and Indonesian nickel wet smelting projects will contribute new profit growth points to the company. The company's net profit is estimated to be 596/665/824 million yuan in 2023-2025. Referring to the current valuation of comparable companies, the company was given 2.0 times the 2023 PB valuation, and the company was given a target price of 37 yuan to maintain the “buy” rating.
The company's performance has declined year over year since 2022. In 2022, the company achieved revenue of 5.09 billion yuan, an increase of 17.0% over the previous year, and achieved net profit of 212 million yuan, a decrease of 68.0% over the previous year, and net profit of the mother after deduction of 224 million yuan, a decrease of 67.7% over the previous year. In the first quarter of 2023, the company achieved revenue of 1,131 million yuan, a decrease of 28.1% over the previous year, and achieved net profit of 17.74 million yuan, a decrease of 89.8% over the previous year. After deduction, net profit returned to the mother was 35.86 million yuan, a decrease of 84.2% over the previous year. Non-recurring profit and loss mainly comes from changes in the value of Funeng Technology's shares held by the company. 2023Q1 affected about 25 million yuan.
Large fluctuations in copper and cobalt prices affected profitability, and stabilizing prices in 2023 helped restore profitability. The sales volume of the company's copper and cobalt products in 2022 was 434/0.73 million tons, respectively +25.4%/-11.7%, respectively; the gross profit per ton of copper and cobalt products was 116/53,200 yuan respectively, -11.2%/-50.3%, respectively. LME copper prices fluctuated greatly in 2022, which had a negative impact on the company's electrolytic copper profitability; in 2022, cobalt prices continued to fall, and electrolytic cobalt prices fell 34% throughout the year, leading to a sharp decline in the profitability of the company's cobalt products. Since 2023, international copper and cobalt prices have remained slightly volatile, and stabilizing product prices is expected to gradually restore the company's profitability.
The first phase of the Hanrui project in Ganzhou was put into operation, and cobalt salt production capacity increased dramatically. The first phase of the company's Ganzhou Hanrui 10,000 tons/year metallurgical cobalt material and the 26,000 tons/year 300 yuan driver project has already produced cobalt chloride, cobalt sulfate and cobalt carbonate, and the second phase of the waste recycling project is speeding up construction. According to the project plan, the production capacity of the first phase of cobalt salt is 7,000 tons of metal per year. We expect to gradually release production capacity this year to contribute to the company's profit growth.
Entered Indonesia to lay out nickel wet smelting projects and improve the integrated lithium battery layout. The company's 2023 fixed increase plan plans to raise no more than 5 billion yuan to invest 60,000 tons of nickel and cobalt hydroxide production capacity in Huabao Industrial Park in Indonesia. The project will strengthen the supply of raw materials for the company's Sanyuan driver project, deepen the company's strategic layout in the field of new energy, and make every effort to ensure that the company achieves profit growth points in new fields and businesses.
Risk factors: the risk of a sharp drop in copper and cobalt metal prices; the risk that the company's capacity expansion progress falls short of expectations; the risk that construction and operation of overseas projects will be blocked.
Profit forecasts, valuations and ratings: We expect the company to benefit from increased cobalt salt production capacity and the stabilization of copper and cobalt prices in the future. Profitability is expected to recover. The commissioning of Sanyuan carbide and Indonesian nickel wet smelting projects will contribute new profit growth points to the company. Considering the decline in profit caused by cyclical fluctuations in cobalt prices, it is expected that the company's profit level will decline from the peak of the cycle. Therefore, we lowered the company's 2023-24 net profit forecast to 596/665 million yuan (the original forecast was 1,263/1,577 billion yuan), and the forecast value of net profit to the mother for 2025 was 824 million yuan, and the corresponding EPS forecast value for 2023-25 was 1.92/2.15/2.66 yuan/share.
Currently, comparable companies in the copper and cobalt industry (Tengyuan Cobalt, Huayou Cobalt, and Grimmie) in 2023 Wind unanimously expect an average PB valuation level of 2.2 times, giving the company a PB valuation of 2 times that of 2023. The corresponding company's target price is 37 yuan/share, maintaining a “buy” rating.