Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 146.985 billion yuan, a year-on-year increase of 8.95%, net profit to mother of 1,579 billion yuan, a year-on-year decrease of 12.73%, and net profit without return to mother of 1,538 billion yuan, a year-on-year decrease of 15.10%. Looking at a single quarter, the company achieved operating income of 36.430 billion yuan, a decrease of 8.38% and a year-on-year decrease of 1.18%; realized net profit to mother of 61 million yuan, a decrease of 87.95%, a year-on-year decrease of 81.36%; and realized net profit withheld from mother of 69 million yuan, a decrease of 85.85% month-on-month and a year-on-year decrease of 81.83%. 2023Q4

Volume: In 2023, mine reserves increased more than consumption, and self-produced copper from Pulang Copper Mine and Yangla Copper Mine increased year-on-year.

In 2023, the company produced 63,700 tons of copper in its own copper concentrate, up 1.76% year on year (equity caliber 651,000 tons, up 1.09% year on year). Among them, Prang copper ore increased 0.23 million tons year over year mainly due to more mature natural collapse technology and superimposed recovery rate optimization. Yangla copper mine increased 0.12 million tons year over year, mainly due to completion of basic mining work and completion of licenses in '22, entering a steady and continuous release stage; cathode copper production was 1.3801 million tons, up 2.29% year on year (equity caliber 969,400 tons, up 2.29% year on year) 1.85%); Gold production was 16.20 tons, down 4.91% year on year; silver production was 737.53 tons, up 14.14% year on year; sulfuric acid production was 5.164,500 tons, up 7.58% year on year.

Price: Gross margin declined slightly year on year in 2023, mainly due to a year-on-year increase in commodity prices and a sharp year-on-year drop in sulfuric acid prices. The company's gross margin in 2023 was 4.13%, down 0.71 pct year on year; 2023Q4, the company's gross margin was 4.91%, up 0.91 pct from month to month, up 0.80 pct year on year. In terms of gross margin by product, in 2023, cathode copper was 3.34%, down 0.03pct; precious metals were 9.29%, up 4.29pct year on year; sulfuric acid was -6.06%, down 67.56pct year on year. Looking at commodity prices, in 2023, the average price of cathode copper was about 68,000 yuan, up 1.71% year on year; the average price of gold was about 450.48 yuan/gram, up 14.72% year on year; the average price of silver was about 5578.74 yuan/kg, up 17.68% year on year; and the average price of sulfuric acid was about 237.05 yuan/ton, down 57.68% year on year. 2023Q4, the average price of cathode copper was about 67,700 yuan, down 1.43% from the previous month, up 4.33%; the average price of gold was about 472.25 yuan/gram, up 2.72% from month to month, up 17.82% year on year; the average price of silver was about 5903.55 yuan/kg, up 2.58% month on month, up 20.44% year on year; the average price of sulfuric acid was about 287.42 yuan/ton, up 23.38% year on month, up 1.44% year on year. 2023Q4, as copper ore supply-side disturbances led to a decline in expected copper concentrate production, compounded by the active expansion of domestic smelters, resulting in a continuous decline in spot processing fees for copper concentrate. The average price of TC copper concentrate was about 77.47 US dollars/ton, a decrease of 16.65% over the previous month.

Impairment calculation: In 2023, the company added a total of 836 million yuan in depreciation, including an inventory reduction reserve of 119 million yuan, a credit impairment reserve of 116.218 million yuan, and a total impairment provision of 706 million yuan for fixed assets, intangible assets and long-term equity investments, mainly due to the calculation of depreciation of old installations in the Southwest Copper Industry Relocation Project and assets related to the shutdown of the Six Copper and Tho mines in Chuxiong Mining and Metallurgy.

Core highlights: 1) Increased shareholding in Diqing Nonferrous Metals, further increasing the amount of resources held by copper. In 2022, the company acquired additional shares in Diqing Nonferrous Metals. The share ratio increased from 50.01% to 88.24%, and the amount of copper metal held by the company increased to 3.6622 million tons by the end of '23. 2) The relocation project optimizes the smelting layout. The investment scale of the Southwest Copper Branch's relocation project is about 640 billion yuan. After completion, the project will have an annual production capacity of 550,000 tons of cathode copper, 1.4 million tons of sulfuric acid, 11.28 tons of gold ingots, and 650 tons of silver. 3) Backed by China Alcoa Group, the majority shareholder, resource integration can be expected in the future. The majority shareholders own shares in Liangshan Mining, Peru's Toromocho copper project, and Tibet's Jinlong mining area, and future asset injections can be expected.

Investment advice: The company is the only listed company in the copper industry under China Alcoa Group and China Copper. Mine side asset injection can be expected. We expect that in 2024-2026, the company's net profit will be 1,821, 20.56 billion yuan, and 2,233 billion yuan, and PE corresponding to the March 28 stock price will be 14/13/12X, respectively, maintaining the “recommended” rating.

Risk warning: Copper price fluctuation risk, TC/RC falls short of expectations, asset injection progress falls short of expectations.