Luoyang Molybdenum Co., Ltd. (603993): Copper and cobalt double engine launches endogenous cost reduction and epitaxial expansion

Views focus on maintaining outperforming industry investment recommendations. In the near term, the copper and cobalt sectors are picking up at the same time. The company is sitting on high-quality resources, and history is highly correlated with copper and cobalt prices.

At present, the company’s A / H continues to reflect only the copper price of US $ 5200/5800 / ton (assuming the price of cobalt is 30 kilotons / ton). Although the short-term new energy vehicle and consumer electronics industries have entered a low season, we are optimistic about the company’s gradual performance in 2020.

  Reasons copper and cobalt double engine.

The company has a long history and the price of copper and cobalt is highly correlated. We believe that the simultaneous development of copper and cobalt in 2020 is expected to catalyze the company’s upward movement.

In terms of cobalt, driven by new energy vehicles and 5G in 2020, we expect growth in cobalt demand to return to the fast lane.

The level of carbonization at the supply side of Mutanda has suppressed supply growth expectations. We believe that the fundamentals of cobalt are expected to return to equilibrium this year, and cobalt prices will usher in phased growth.

In terms of copper, the development of robust growth policies and improvement in macro expectations will boost copper demand expectations. However, as long-term capital expenditures tend to fall, copper terminal volume tends to remain tight. We expect copper prices to be in an upward cycle in 2020.

  Resource endowment is outstanding.

The company’s Tenke located in Colombia (gold) is one of the world’s highest quality copper mines, with an annual output of approximately 17 copper precipitates and cobalt 1 production.


8 cobalt (the second largest cobalt mine in the world).

  Woodmac 南宁桑拿 estimates that Tenke’s C1 cash cost in the fourth quarter of 19 was only $ 1,479 per ton, which was located at the 9th place of the global cost curve, with a significant cost advantage.

Due to the downward adjustment of copper and cobalt prices and the deferred accounting adjustment of cobalt sales, the profit level of the 1H19 copper-cobalt segment has declined. However, we believe that this translates to stable copper and cobalt prices, and the segment profit is expected to return to ideal levels and has upward flexibility.

  Both endogenous (cost reduction) and extension (acquisition + participation) growth are equally important.

The company formulated a three-year cost reduction and efficiency improvement action plan in 2018. The initial goal is to reduce operating costs by 500 million US dollars. The company expects 杭州夜网论坛 that the cost reduction effect from 2020 to 2021 will initially appear.

In 2019, the company completed the acquisition of 24% minority shareholders of top international non-ferrous metal traders IMX and Tenke, and also participated in the Indonesian laterite nickel ore wet smelting project (mixed nickel-cobalt hydroxide with an annual output of 6 kinds of nickel metals).

  Earnings forecasts and estimates are based on changes in assumptions such as earnings and production. We maintain our 2019 earnings forecast18.

3 trillion, raised the 2020 profit forecast by 11% to 28 trillion, while the date 2021 profit forecast 32.

900 million.

Company A / H shares correspond to 34/24 times 2020 P / E, which is 53/28 times lower than the historical average.

We maintain the A-shares outperform industry rating and target price of 5 yuan, corresponding to 39 times the 2020 P / E and 13% growth space, and maintain the H-shares outperform industry rating and target price of 4 Hong Kong dollars, corresponding to 28 times the 2020 P / E and18% upside.

  Risk demand fell short of expectations, and copper and cobalt prices fell sharply.