Key Takeaways from Cobalt Expert Call Industry Overview - The focus of the call was on the cobalt industry, particularly in Greater China, with insights provided by Mr. Liu Lei, a cobalt expert from Mysteel [2][3]. Cobalt Inventory and Consumption - China's cobalt inventory is projected to consume **42,000 tons (kt)** in 2025, decreasing to approximately **30kt** by the end of 2025. Most inventory is in the form of cobalt metal, excluding about **13kt** in bonded warehouses, primarily owned by foreign traders [2]. - Current ex-China cobalt inventory is estimated at **8kt** [2]. - Cobalt consumption is expected to grow at an annual rate of **8-10%** in the coming years, with a global cobalt deficit projected to be between **25-30kt** in 2026 [9]. Demand Projections - Demand for cobalt from lithium cobalt oxide batteries, mainly used in consumer electronics, is estimated at **77kt** in 2025, potentially rising to **85kt** in 2026 [3]. - Demand from ternary batteries is projected at **85kt** for 2025, while demand for high-temperature alloys and super hard alloys is estimated at **6kt** and **8kt**, respectively [3]. Price Sensitivity - Consumer electronics and high-temperature alloys show low sensitivity to cobalt prices, as lithium cobalt oxide batteries constitute a small portion of their costs. In contrast, electric vehicle (EV) battery demand is sensitive to cobalt prices, with a potential cost increase of **Rmb0.6-1.3k** for every **Rmb100k/t** rise in cobalt prices, impacting EV manufacturers' profitability [4]. Market Outlook - Mr. Liu Lei expressed an optimistic outlook, predicting that China's cobalt price could reach **Rmb450k/t** by year-end, while overseas prices might reach **US$26/lb** [9]. - Cobalt shipments from the Democratic Republic of the Congo (DRC) are expected to commence in mid-December, arriving in China by late January or early February, with ongoing inventory digestion during this period [9]. Additional Insights - The price gap between cobalt salts and cobalt metal may incentivize smelting metal into salts, potentially reaching **1-2k tons** of metal per month [2]. - The expert's views are independent and may differ from those of Morgan Stanley's Research Department [5]. This summary encapsulates the key points discussed during the cobalt expert call, highlighting the current state and future outlook of the cobalt industry in Greater China.

Summary of the Conference Call Transcript Company Overview - **Company**: Zhejiang Huayou Cobalt Co Ltd - **Ticker**: 603799.SS - **Market Cap**: Rmb 87,248.7 million - **Current Share Price**: Rmb 51.56 (as of September 19, 2025) - **Price Target**: Rmb 43.00 - **52-Week Range**: Rmb 54.75 - 21.61 - **Shares Outstanding**: 1,692 million - **Average Daily Trading Value**: Rmb 1,725 million Industry Context - **Industry**: Cobalt and Nickel Production - **Key Market Dynamics**: - The Democratic Republic of Congo (DRC) has extended its cobalt export ban until October 15, 2025, followed by export quotas that will limit the 2026-27 quota to 40% of normal production levels. This is significant as DRC accounts for 70% of global cobalt supply [2][4]. - Nickel smelters in Indonesia, which utilize laterite nickel ore and the HPAL method, are expected to benefit from a potential increase in cobalt prices, as they typically produce about 10% cobalt as a byproduct [2]. Production Estimates - **Cobalt Production**: - Huayou's cobalt production volume from its Indonesian smelting operations is estimated to be approximately 20,000 tons (with 11,000 tons attributable based on shareholding) in 2025 [2]. Valuation and Risks - **Valuation Methodology**: - The price target is derived from a Discounted Cash Flow (DCF) model, assuming a Weighted Average Cost of Capital (WACC) of 10.9% and a steady-state revenue growth rate of 2% [7]. - **Risks to Upside**: - Improvement in cobalt prices alongside demand - Increase in copper prices - Rising sales volume of NCM (Nickel Cobalt Manganese) precursors - Cost reductions in NCM due to self-supply of nickel raw materials from Indonesian projects coming online [9]. - **Risks to Downside**: - Lower-than-expected cobalt and copper prices - Missed precursor sales volume due to weaker-than-expected demand - Slower-than-expected ramp-up of Indonesian nickel projects [9]. Analyst Insights - **Analyst**: Chris Jiang, Morgan Stanley Asia Limited - **Stock Rating**: Equal-weight - **Industry View**: Attractive - **Analyst Certification**: The analyst certifies that views about the company and its securities are accurately expressed and that no compensation has been received for these views [14]. Additional Notes - The report indicates a "very likely" probability (70% to 80%) for the scenario regarding cobalt supply impacts due to DRC's export policies [3]. - The company is positioned to benefit from the ongoing dynamics in the cobalt market, particularly with the expected price increases due to supply constraints from the DRC [2][4].

Investment Rating - The stock rating for Zhejiang Huayou Cobalt Co Ltd is Equal-weight [4] - The industry view is Attractive [4] Core Insights - Zhejiang Huayou Cobalt Co Ltd reported preliminary profit for 1H25 of Rmb2.6-2.8 billion, representing a year-on-year increase of 56-68%, aligning with consensus estimates [1][2] - The net profit for Q2 2025 is estimated to be Rmb1.35-1.55 billion, reflecting an 18-35% year-on-year increase and an 8-24% quarter-on-quarter increase [1] - The substantial profit growth is attributed to the production from the Huafei project, stable operations and cost savings from the Huayue project, increased self-sufficiency in raw materials, rising cobalt prices, and improved operational efficiency [2] Financial Projections - The expected EPS for fiscal years ending in 2023, 2024, 2025, and 2026 are Rmb2.05, Rmb1.34, Rmb1.42, and Rmb2.00 respectively [4] - Revenue projections for the same fiscal years are Rmb65,936 million, Rmb63,642 million, Rmb66,235 million, and Rmb70,900 million respectively [4] - The company is anticipated to benefit from rising cobalt prices in 2H25, which have increased approximately 7% since the DRC announced an extension of the cobalt export ban [3]