Summary of Huayou Cobalt (603799.SS) Earnings Review and Analyst Briefing Company Overview - **Company**: Huayou Cobalt (603799.SS) - **Industry**: Basic Materials, specifically focusing on battery metals including nickel, cobalt, and lithium Key Financial Results - **1H25 Net Profit**: Rmb2.7 billion, up 62% year-over-year (YoY) [1] - **Earnings Per Share (EPS)**: Rmb1.61, up 62% YoY [1] - **Recurring Profit**: Rmb2.5 billion, up 50% YoY, excluding one-off items [1] - **Revenue Growth**: Total revenue increased by 24% YoY in 1H25, driven by strong performance in nickel and ternary cathode segments [25] Segment Performance - **Nickel Products**: Revenue from nickel products more than doubled YoY, significantly contributing to overall profit [26] - **Ternary Cathode**: Gross profit from ternary cathode increased by 23% YoY, driven by better realized average selling price (ASP) and sales volume [27] - **Cobalt Products**: Revenue from cobalt products decreased by 44% YoY, indicating challenges in this segment [35] - **Copper Products**: Gross profit from copper was down 41% YoY, attributed to lower realized ASP [26] Market Dynamics - **Ternary Battery Market Share**: Declined to 21% in 1H25 from 27% in 2024 and 32% in 2023, impacting shipments and margins for Huayou's battery material business [2] - **Price Outlook**: Recent price recovery in lithium and cobalt is expected to be short-lived, with prices likely to remain depressed due to a global surplus [2] Valuation and Price Target - **Revised Price Target**: Rmb32.4 per share, up from Rmb28.7, based on a sum-of-the-parts (SOTP) valuation [2] - **Theoretical Valuation Range**: Rmb10.1 to Rmb15.7 per share based on bottom-of-the-cycle analysis [2] - **Current Share Price**: Rmb44.07, indicating a downside of 26.5% from the target price [1] Risks and Outlook - **Negative Risk-Reward**: The risk-reward profile remains negative, with potential for further declines in earnings due to market conditions [2] - **Operational Challenges**: The balance sheet remains stretched, with operating cash flow declining by 41% YoY in 1H25 [29] - **Future Projects**: Ongoing projects in Indonesia and Zimbabwe are expected to enhance production capacity, particularly in lithium and nickel [33] Key Takeaways from Analyst Briefing - **MHP Nickel Production**: Strong shipments expected to sustain in 2H25, with MHP shipment in 1H25 at 120kt, up 40% YoY [33] - **Lithium Production Plans**: Full-year lithium production plan maintained at 45kt-LCE for 2025, with expectations to increase to 60-80kt-LCE in 2026 [33] - **Ternary Cathode Shipment Guidance**: Expected to reach 100kt in 2025, indicating over 50% YoY increase [33] Conclusion - Huayou Cobalt's financial performance in 1H25 shows significant growth driven by nickel and ternary cathode segments, but challenges in cobalt and copper markets persist. The company's outlook remains cautious due to market dynamics and operational risks, leading to a maintained sell rating.