Key points of investment

The company released its 2024 mid-year report, achieving revenue of 10.88 billion yuan in the first half of 2024, +17.2% year on year; net profit to mother of 0.587 billion yuan, +73.5% year over year.

The third phase of the wet process 0.065 million ton ONC project was put into production, and the total production capacity of the company's wet process project reached 0.12 million tons

The company's HPAL wet process project achieved an output of 0.039 million tons in the first half of the year. The total production capacity of the HPL project (HPAL Project Phase I Phase II) was 0.055 million tons, and the capacity utilization rate continued to exceed 100%, achieving steady overproduction. The company's HPAL wet process phase III ONC project has a total of 3 production lines, with a total annual design capacity of 0.065 million tons of metal mHP (nickel-cobalt compound), which reached production on September 2, 2024. In addition to the company's production capacity of 0.055 million tons of wet phase I phase II, the company's total wet production capacity reached 0.12 million tons. The rapid completion of the third phase of the wet method once again proved the company's strong project construction capabilities and consolidated the company's industry-leading competitive advantage.

Fire Law Phase I HJF production is stable, and Fire Law Phase II KPS project is progressing steadily

The production lines of the Fire Law HJF project began to be put into operation one after another in October 2022, and a full range of production was achieved in August 2023. A stable production rhythm was maintained in the first half of 2024, and an output of more than 0.05 million tons of nickel was achieved. The construction of the company's Fire Law Phase II KPS project is progressing steadily. Core equipment is entering the construction site one after another. All 12 production lines of the KPS project are expected to be completed within 2026.

Nickel prices fluctuated at the bottom, and the company's gross margin remained stable year-on-year

The average LME nickel price in the first half of 2024 was $0.0177 million/ton, down 27% year over year. As of early September, the closing price of LME nickel was 0.0159 million/ton, and the LME inventory was 0.122 million tons, which is a nearly one-year high. The second quarter was affected by RKAB approval falling short of expectations, production restrictions during the rainy season in the Philippines, and local production restrictions during the Singaporean riots. Q2 short-term supply releases were limited, supply and demand were tight, and nickel prices rose markedly month-on-month. As RKAB approval gradually progressed, supply bias eased, and currently nickel prices fluctuated at the bottom. The company's gross sales margin for the first half of the year was 16.8%, which was basically the same as the previous year. By product, the gross margin of the company's wet products fell from 40.3% in the same period last year to 39.6% in the first half of the year. The gross margin of self-produced nickel iron fell a lot in the first half of the year, falling from 8.6% to 0.8% in the same period last year. Thanks to the continuous cost optimization of the company's wet process project, the company's wet process project still maintains a high gross profit margin.

Profit forecasting and valuation

Since 2023, due to supply easing, nickel prices have been in a volatile bottoming phase. However, since 2024, due to falling nickel prices, several nickel projects have announced the suspension of operation and construction. We believe that the future decline in nickel prices will be limited. We expect the company's net profit to be 1.24 billion, 1.91 billion, and 2.06 billion in 2024-2026, respectively, up 18%, 54%, and 8% year-on-year, respectively. With its own cost advantage, the company still maintains industry-leading profitability, and the third phase of the wet method was quickly completed and put into production, and the second phase of the fire method progressed steadily. The future growth rate is obvious, and the purchase rating is maintained.

Risk warning

Nickel prices fluctuated greatly, the company's project progress fell short of expectations, and sales of new energy vehicles fell short of expectations.