The rise in gold prices may fully detonate the commodity bull market, and the cobalt industry leader is expected to fully benefit

Investment advisory support|Yu Xiaoming, editor|Gu Jinfeng

Source: Jufeng Investment Advisory, Good Stock Application

As the second quarter kicked off, gold rose again to record levels, extending its recent rally. Spot gold rose 0.8% in early trading on Monday, breaking through the $2,250 an ounce mark for the first time. The agency believes that the growth of the industry focuses on the expansion of demand for metal raw materials related to the new energy and new infrastructure industry chains. The growth attribute is reflected in the systematic rightward shift of the demand curve of various metal varieties driven by the continuous implementation of new energy infrastructure. Bringing the cobalt industry leader today, let's take a look at the company's investment logic.

The expectation of interest rate cut is strengthened + the domestic economy is picking up, and metal prices are expected to maintain an upward trend

According to the latest data from CME's "Fed Watch", the probability that the Fed will keep interest rates unchanged by June is 25.3% (previously 35.3%), the probability of a cumulative interest rate cut of 25 basis points is 68.1% (previously 59.8%), and the probability of a cumulative rate cut of 50 basis points is 6.6% (previously 4.8%). From January to February, China's industrial value-added above designated size increased by 7% year-on-year, up from 2.4% in the same period last year. The economic data from January to February, the industrial data suggests that the domestic economy is in an upward trend, and the boosting effect of the previous economic policy is gradually emerging. Overseas liquidity tends to be loose, domestic economic policy effects are showing, and metal prices are expected to maintain an upward trend.

Industrial metals: The domestic macro economy is steadily improving, and we look forward to the peak season of industrial metals to go to the warehouse

The domestic National Standing Committee requires the optimization of real estate policies, and many places have issued incentive policies for trade-in in home appliances and other industries, and the domestic macro economy has been steadily improving under the "Golden Three, Silver and Four", and the smelter shutdown and maintenance is imminent, and copper prices are about to enter the main rising wave. Copper, on the supply side, this week's imported copper concentrate index reported 6.38 US dollars / ton, a decrease of 4.25 US dollars / ton from the previous period, copper processing fees continued to decline, this week the CSPT group held a meeting, advocating that the group of enterprises jointly reduce production, reduce production by 5%-10%, and promote the implementation. On the demand side, the operating rate of SMM copper cable enterprises increased by 2.51pct month-on-month to 73.08% this week. In terms of aluminum, on the supply side, the Ministry of Yunnan expects that more than 500,000 tons of electrolytic aluminum involved in the first batch of resumption of production will be completed around the end of April, and the rest of the production capacity will resume production or be shelved due to insufficient hydropower supply, SMM expects the monthly output of domestic electrolytic aluminum to increase by about 4% year-on-year in March

Energy metals: Lithium salt plants resumed production to improve supply, and overseas lithium mine bidding was launched

Most domestic enterprises have initially resumed production after overhaul, production has recovered, Chilean export sources have also arrived in Hong Kong in the near future, and the overall increase in downstream cathode replenishment demand is limited, and prices fluctuate downward. In terms of lithium, the influence of Jiangxi's environmental protection supervision has gradually subsided, the smelting production capacity has been restored, South American imports have increased, and the price of overseas mines has risen with several biddings, supporting the price sentiment. In terms of cobalt, on the supply side, the concentration of raw material spot supply is high, the seller is at a high price, and the profit of the smelting link is weak; on the demand side, the precursor end is more willing to replenish the warehouse when the follow-up orders are landed, and the tetracobalt still has a certain demand for replenishment due to the delivery of orders. On the supply side, the operating rate of nickel salt plants is better than expected, the profitability of smelters has rebounded, and on the demand side, the increase in precursor orders is limited

Precious metals: Gold prices accelerated upward, and we continue to be optimistic about the improvement of gold's asset allocation status

U.S. March Markit manufacturing PMI data show that the U.S. manufacturing industry performance is strong, but the service industry data that contributes more to the economy is less than expected, the downward pressure on the U.S. economy still exists, the core PCE price index released on Friday in February was 2.78%, showing a clear downward trend, the certainty of U.S. interest rate cuts continues to increase, driving gold prices higher, in the medium and long term, the status of gold in the asset allocation of central banks around the world continues to rise, and central bank purchases continue to increase.

Historically, gold's rise has mostly been a leading signal of a broad bull market in commodities

In most economies, monetary policy tends to become friendlier as the economy continues to decline, and interest rates continue to fall, while gold is more sensitive to interest rates, so gold bottoms out earlier. At the same time, the prices of other commodities (CRB index) bottomed out later due to the need to focus on supply and demand in the real economy. From 1980 to 2005, the price of gold was ahead of other commodities in all commodity cycles, mostly between six months and one year.

Bringing the cobalt industry leader today, let's take a look at the company's investment logic.

1. The company is a leader in the cobalt industry, benefiting from the rise in gold + rising demand, and the company's profitability is expected to increase.

2. The company's gross profit margin improved month-on-month, and the cost control during the period was better.

3. The operating cash flow has improved significantly, and the global production capacity layout has been gradually put into production.

Introduction and main business of Huayou Cobalt

Huayou Cobalt Co., Ltd. has always adhered to scientific and technological innovation and scientific management. In the field of cobalt-copper wet process, cobalt new materials and environmental protection, it has China's first-class independent core technology, and has passed the certification of ISO9000, ISO14000, OHSAS18000, GB/T19022 and GB/T15496 management systems, providing a solid guarantee for the company to strengthen and expand the cobalt industry. After more than 10 years of development and accumulation, the company has completed the spatial layout of the headquarters in Tongxiang, the resource guarantee in Africa, the manufacturing base in Quzhou, and the market in the world. It has formed a vertically integrated industrial structure with its own mineral resources as the guarantee, new cobalt materials as the core, copper and nickel products as the auxiliary, and mining, dressing, smelting and deep processing of new materials.

The concept of Huayou Cobalt shares

Energy Metals, Power Battery Recycling, Zhejiang Plate, HS300_, New Materials, Convertible Bond Targets, Fund Heavy Positions, Base Metals, Lithium Batteries, Margin Trading, SSE 50_, SSE 180_, Minor Metals Concept, Shanghai-Hong Kong Stock Connect, MSCI China, Unicorn, FTSE Russell, Standard & Poor's, New Energy Vehicles, Salt Lake Lithium Extraction.

What is the status of Huayou Cobalt in the industry?

In terms of operating income, Huayou Cobalt ranks 14th in the industry higher than the industry average.

What is the basic situation of Huayou Cobalt's stock issuance?

Huayou Cobalt has a total share capital of 1.71 billion shares, of which 1.686 billion A shares are outstanding. As of March 29, the total market capitalization was 46.378 billion yuan, the circulating market value was 45.733 billion yuan, and the price-earnings ratio was 11.85. The number of shareholders is 217,100. The largest shareholder is Huayou Holding Group Co., Ltd., with the top ten shareholders accounting for 38.21% of the shares.

What about the financial data of Huayou Cobalt stock?

According to the third quarter report of 2023, Huayou Cobalt's total revenue was 17.746 billion yuan, and the net profit attributable to the parent company was 928 million yuan, with a year-on-year increase of 0.29% in total revenue and a year-on-year increase in attributable net profit of 23.37%.

As of June 30, 2023, in terms of products, the operating income of cathode materials was 10.720 billion, with a revenue ratio of 32.15%, the operating income of trade and other products accounted for 5.189 billion, with a revenue ratio of 15.56%, the operating income of ternary precursors was 4.982 billion, with a revenue ratio of 14.94%, and the operating income of nickel intermediates was 31.32%, with a revenue ratio of 9.32%.

Executive Profile:

Chen Xuehua: male, born in 1961, Chinese nationality, no right of permanent residence abroad, senior economist, honorary doctorate of Lubumbashi University. He used to work in Xianghou Village Chemical Factory, Lutou Township, Tongxiang City, and Huaxin Chemical Factory, Tongxiang City. In 2002, Mr. Chen Xuehua co-founded Zhejiang Huayou Cobalt and Nickel Materials Co., Ltd. (the predecessor of the Company), and served as the chairman and general manager of the Company from June 2002 to July 2016, and has served as the Chairman of the Board of Directors since July 2016. Mr. Chen Xuehua is also currently the chairman of Huayou Holding Group Co., Ltd.

Earnings for the first three quarters of 2023 increased by 0.18% year-on-year

The company released the third quarter report of 2023, with revenue of 51.091 billion yuan in the first three quarters, a year-on-year increase of 4.88%, a profit of 3.013 billion yuan, a year-on-year increase of 0.18%, and a non-profit of 2.726 billion yuan, a year-on-year decrease of 6.60%. According to the performance estimate, in the third quarter of 2023, the profit was 928 million yuan, a year-on-year increase of 23.37% and a quarter-on-quarter decrease of 12.53%, and the non-profit deduction was 887 million yuan, a year-on-year increase of 22.07% and a quarter-on-quarter increase of 5.17%.

Gross profit margin improved sequentially, and expenses were better controlled during the period

Benefiting from the development of new energy vehicles and power battery industry, the company's shipments of cathode materials and precursors are growing. The company's overall operating gross profit margin showed an improvement trend, with an operating gross profit margin of 14.89% in the first three quarters, a year-on-year decrease of 2.95 percentage points, of which the operating gross profit margin in the third quarter of 2023 was 14.84%, an increase of 1.68 percentage points quarter-on-quarter. In the third quarter of 2023, the sales, management, R&D, and financial expense ratios were 0.22%, 2.81%, 2.12%, and 2.78%, respectively, down 0.03 percentage points, down 1.05 percentage points, down 0.35 percentage points, and up 4.24 percentage points from the previous quarter.

Operating cash flow has improved significantly, and the global production capacity layout has been gradually put into operation

The company's operating cash flow improved significantly, and the net cash flow generated by operating activities in the first three quarters was 2.483 billion yuan, a significant increase of 234.94% year-on-year. According to the company's interim report, the 120,000-ton nickel metal hydrometallurgy project of Huafei in Indonesia was put into trial production in June, the 45,000-ton nickel metal high-glacial nickel project of Huake was basically put into production, the SCM concentrator and Huayue long-distance pipeline were progressed in an orderly manner, and the preparatory work of Huashan 120,000 tons of nickel metal hydrometallurgical project and Pomalaa hydrometallurgical project was carried out in an orderly manner. The first batch of products has been successfully produced from the Arcadia lithium project in Zimbabwe in the African region. With the gradual implementation of the company's overseas production capacity, the level of integration has been improved, and it is expected to enhance its competitiveness.

Master Wisdom:

Profitable trading will not make you grow, it will only drag you backwards, you have to gain experience from failures and mistakes. – Peter Lynch

Risk Warning:

The demand for new energy vehicles and 3C batteries does not meet expectations, the progress of global cobalt and nickel mining and launch exceeds expectations, the price competition exceeds expectations, and overseas operations and exchange rate risks.

Source:

Minsheng Securities-Nonferrous Metals Weekly: The peak season of domestic demand is coming, and the main rising wave of metals is about to open-20240331

Cinda Securities-Non-ferrous Metals Weekly Report: Metal prices continue to rise 20240331 as interest rate cut expectations strengthen + domestic economy recovers

Minsheng Securities-Metals Industry 2024 Annual Strategy Series Report - Industrial Metals & Energy Metals: Thousands of Red and Purple Arrangements, Just Waiting for the First Thunder - 20231217

BOC Securities-Huayou Cobalt-603799. SH-Gross margin improved sequentially, and overseas production capacity was gradually put into operation to 20231102

Zheshang Securities-Huayou Cobalt-603799. SH-Huayou Cobalt's third quarterly report performance comments: integration is steadily advancing-20231031

(Investment advisory support: Yu Xiaoming, practicing certificate: A0680622030012)

Disclaimer: The above content is for reference only and does not constitute specific operation advice, and you shall operate at your own risk and profit and loss