1H22 results in line with our forecast
　　China Molybdenum announced that revenue rose 8% YoY in 1H22 to Rmb91.77bn and attributable net profit jumped 72% YoY to Rmb4.15bn. revenue climbed 5.2% YoY (6.1% QoQ) in 2Q22 to Rmb47.2bn, and attributable net profit rose 68.1% YoY 31.5% QoQ) to Rmb2.36bn. The firm’s results were in line with our expectation.
　　Sales volume, product prices in mining sector rise; attains more than half of full-year production target. In 1H22, prices of the firm’s products in the mining sector rose sharply, and capacity expansion and technological upgrading projects in this sector progressed as scheduled. Thus, the output of various products rapidly rose, with the output of copper, cobalt, niobium, and phosphate fertilizer reaching 137,000t, 10,500t, 4,600t, and 565,000t. The firm completed more than half of its full-year production target for such products.
　　Trends to watch
　　Accelerating construction in 2022; key copper-cobalt projects on track; robust growth potential. We believe that the production capacity for the copper-cobalt business at Molybdenum will significantly increase from 2023 on. 1. TFM project: In 1H22, the firm completed the foundation of the coarse crusher and mill in the middle area of the TFM mixed ore project and installing the main equipment of the mill has begun. The construction of the foundation in the eastern area was also completed. Molybdenum expects to put the TFM project into operation in 2023, with the annual average output of copper and cobalt increasing 200,000t and 17,000t to 450,000t and 36,000t after reaching full capacity. 2. KFM project: The firm has largely completed the river diversion project and construction of the concentrator, substation, smelter, and tailings pond was progressing smoothly. The firm expects to put the KFM project into production in 1H23 with annual average output of copper and cobalt rising 90,000t and 30,000t. The firm expects these two projects to add 290,000t of copper and 47,000t of cobalt, with a total output of 540,000t and 66,000t.
　　New energy sector gaining momentum; Huayue project progressing smoothly; cooperating with CATL to expand new energy business. The Huayue project for the new energy metals business reached full production capacity, and the firm completed the equity transaction with CATL Co., Ltd. We believe that the firm’s external expansion is on track and the Huayue project reached full production capacity in April. Huayou Cobalt 's interim report states that Huayue booked a profit of Rmb1.3bn in 1H22 with an estimated output of 20,000t and a full-year guidance of 50,000t. The firm transferred 25% equity in KFM Holding Limited to Hongkong Brunp and CATL (Brunp & CATL) on July 21. The firm and Brunp & CATL indirectly hold 71.25% and 23.75% equity of the Kisanfu copper and cobalt mining project. We believe the two sides will establish an all-round strategic partnership in the new energy metal segment and expand to the value chain of new energy sector based on cooperative development at Kisanfu Mining.
　　Financials and valuation
　　We maintain our 2022 and 2023 net profit forecasts. A-shares are trading at 16.9x and 11.6x 2022e and 2023e P/E, and H-shares are trading at 10.1x and 6.9x 2022e and 2023e P/E. We maintain OUTPERFORM for A-shares but cut TP 14.7% to Rmb6.96 (implying 21.8x 2022e P/E and 15.0x 2023e P/E) offering 29.8% upside, given the falling average prices of copper and cobalt in 2022. We maintain OUTPERFORM for H-shares but cut TP 24.0% to HK$5.22 (implying 14.5x 2022e P/E and 10.0x 2023e P/E) offering 40.3% upside.
　　Risks
　　Higher-than-expected incremental supply of copper and cobalt ores; disappointing capacity expansion of projects; sharper-than-expected fluctuations in raw material prices.