Core views:

23H1's impairment fell sharply, and return net profit increased 45% year-on-year, in line with expectations. According to the company's financial report, 23H1's operating income was 70.8 billion yuan, +10% year-on-year, net profit of 1 billion yuan, +45%, net profit of non-attributable income of 1 billion yuan, +44%, basic earnings per share, 0.5 yuan/share, +23%, net operating cash flow of 3.9 billion yuan, +57% year-on-year, and a balance ratio of 54.51%, year-on-year -1,057 PCT. Reduced inventory price reduction preparations reduced asset impairment by 296 million yuan year on year, and operating profit increased by 188 million yuan year on year.

23H1's copper concentrate production volume and price all dropped slightly year on year, the volume and price of precious metals all increased markedly year on year, and the drop in the price of sulfuric acid dragged down profits. According to the company's financial report, Wind, 23H1 produced copper concentrate, electrolytic copper, gold, silver, and sulfuric acid at a combined caliber of 32,000 tons, 658,800 tons, 9.8 tons, 401.49 tons, and 2.3917 million tons, respectively, with year-on-year changes of -3%, 6%, 17%, 28%, and 9%; the prices of SHFE copper, SGE gold, and Huatong silver fell by 77%, 11%, 9%, respectively. The price of sulfuric acid fell 77% year-on-year, and the tonne cost rose 9%, causing gross profit to drop to -34 yuan/ton;, sulfuric acid, The gross profit of the precious metals business was +39%, -109%, and 41%, respectively, and the total gross profit decreased by 13% year on year.

Diqing Nonferrous Metals is operating smoothly, and Chifeng Yuntong's performance has increased dramatically over the same period last year. According to the company's financial report, Yunnan Diqing Nonferrous Metals and Chifeng Yuntong, which are subsidiaries of 23H1, achieved revenue/net profit of 13.04/3.40 and 15309/276 million yuan respectively, with year-on-year changes of -10%/-37% and 31%/35%, respectively. Diqing's non-ferrous copper concentrate production was 19,300 tons. We estimate their net profit per ton of copper reached 17,636 yuan/ton.

Profit forecasts and investment recommendations. The company's EPS in 2023-2025 is expected to be 1.36/1.59/1.63 yuan/share, corresponding to the closing price of August 23, 2023, and the 2023-2025 PE is 8.24/7.08/6.89 times. Referring to comparable company valuations, the company was given 11 times PE in 2023, corresponding to a reasonable value of 15.00 yuan/share in 2023, and a “buy” rating.

Risk warning. Production of major products fell short of expectations; copper prices fell sharply; copper processing fees fell sharply; US economic resilience exceeded expectations, and gold and silver prices rose less than expected.