3Q22 results slightly miss market consensus
　　China Molybdenum (CMOC) announced that revenue and attributable net profit rose 4.67% and 49.12% YoY In 1-3Q22 to Rmb132.47bn and Rmb5.31bn. Revenue fell 2.5% YoY (down 13.8% QoQ) in 3Q22 to Rmb40.7bn) while attributable net profit rose 0.7% YoY(down 50.8% QoQ) to Rmb1.16bn. The results slightly missed the market consensus, mainly due to the sales volume.
　　Copper and cobalt prices fell significantly in 3Q22. Average copper prices on the London Metal Exchange (LME) fell 18% YoY (19% QoQ) in 3Q22 to US$7,731/t and average cobalt prices declined 4% YoY (28% QoQ) to Rmb342,000/t. Given that the firm’s copper and cobalt projects are mainly in the Democratic Republic of Congo (DRC), we expect revenue recognition to be delayed due to price declines and trade turnovers. Thus, the actual selling prices may be lower than the average selling prices on the LME.
　　Production volume at the TFM project in line with guidance; sales volume of copper and cobalt declined in 3Q22; The Tenke Fulgurate mine (TFM) completed 75% and 80% of its annual copper and cobalt production goal in 1-3Q22, reaching 187,000t and 15,000t. The sales volume of copper declined 69% YoY (77% QoQ) in 3Q22, to 15,000t while cobalt sales volume fell 56% YoY (73% QoQ) to 1,358t. Weather weighed on production and sales volume at Northparkes mine (NPM) project. Copper and gold production volume at the NPM project but the mine still completed 69% and 66% of its annual production goal in 1-3Q22, reaching 17,000t and 12,000 ounces. The sales volume of copper and gold dropped 19% and 21% YoY to 12,000t and 9,000 ounces in 1-3Q22.
　　Trends to watch
　　Smooth progress for KFM and TFM copper and cobalt projects in the DRC; growth potential remained robust.
　　KFM project (1-3Q22): Construction of the infrastructure for the mining plant, civil engineering projects to set up the mining, smelting, acid, and trailing pond plants, as well as steel structural engineering for factories, were all completed at the Kisanfu mine (KFM) project. CMOC also put in place mills, coarse crushers, and other essential machinery and installation of electrical and pipeline infrastructure is in progress. We anticipate that the KFM project will increase average annual copper and cobalt production volume by 90,000t and 30,000t when it begins production in 1H23.
　　TFM project (1-3Q22): In the main area of the TFM mixed ore project, most of the civil work is finished. In the eastern area, the firm has been conducting civil work and installing major equipment such as coarse crushers. We expect this project to be put into production in 2023 with the annual average output of copper and cobalt increasing 200,000t and 17,000t to 450,000t and 36,000t after the project reaches designed capacity. We estimate that copper production volume at CMOC will increase 290,000t to 540,000t, with cobalt production volume increasing 47,000t to 66,000t after the two projects start production.
　　Introducing CATL as second largest shareholder in LMG to improve NEV ecosystem. At end-September, CMOC announced that CATL plans to hold a 24.68% stake in Luoyang Mining Group (LMG). If this transaction is complete, CATL will become the second largest shareholder in CMOC. We believe that this transaction will: 1) secure the sales volume of the KFM project; 2) improve CMOC’s environmental, social and governance (ESG) performance as it begins to internationalize; and 3) helps the firm win lithium-ion battery (LiB) customers and advance its M&A deals in the new energy vehicle (NEV) metal industry.
　　Financials and valuation
　　Given possible continued disruption on the supply side of the industry, will affect annual sales at CMOC, we cut our 2022 and 2023 net profit forecasts 2.4% and 14.0% to Rmb6.7bn and Rmb8.6bn. The A-shares are trading at 13.4x 2022e and 10.4x 2023e P/E and the H-shares are trading at 6.7x 2022e and 5.2x 2023e P/E. We maintain OUTPERFORM on both A- and H-shares. Given that sector valuation has declined and in the light of pessimistic market outlook, we cut our A- and H-share target prices 7.5% and 21.2% to Rmb5.58 (18.0x 2022e and 14.0x 2023e P/E) and HK$3.29 (9.0x 2022e and 7.0x 2023e P/E). Our targets offer 34.4% and 36.6% upsides.
　　Risks
　　Disappointing project progress in DRC; overseas supply fluctuation.