Comments on the 2021 Annual report of Luoyang Molybdenum Industry: the volume and price of major metals have risen, and the performance has greatly increased compared with the same period last year [institutional review]

Event: on March 18, 2022, the company released its 2021 annual report. In 2021, the company achieved revenue of 173.863 billion yuan, an increase of 53.9% over the same period last year, a net profit of 5.106 billion yuan, an increase of 119.3% over the same period last year, and a non-return net profit of 4.103 billion yuan, an increase of 276.2% over the same period last year. 2021Q4, the company achieved revenue of 47.304 billion yuan, an increase of 44.8% over the same period last year, an increase of 13.3% over the same period last year; a net profit of 1.548 billion yuan, an increase of 115.2% and an increase of 34.6% over the same period last year; and 2.189 billion yuan of non-return net profit, an increase of 549.9% over the same period last year and 326.7% over the previous year. The performance is in line with our expectations.

The year-on-year increase in performance in 2021 is mainly due to the simultaneous increase in volume and price of major metals. In 2021, the average annual prices of copper, cobalt, molybdenum, tungsten, niobium and phosphorus increased by 50.61%, 56.02%, 82.76%, 29.07%, 71.6% and 105.93% respectively compared with the same period last year. The company's copper TFM, cobalt, molybdenum, tungsten, niobium and phosphorus production increased by 14.53%, 19.86%, 18.9%,-0.25%,-7.68% and 2.41%, respectively.

In a single quarter, the net profit of 2021Q4 increased by 398 million yuan compared with the previous quarter. The growth mainly comes from gross profit (+ 1.948 billion yuan) and minority shareholder profit and loss (+ 571 million yuan). The increase in gross profit is mainly due to the increase in the volume and price of copper and cobalt, while the profit reduction mainly lies in income tax (- 538 million yuan), fees and taxes (- 247 million yuan), impairment loss (- 18 million yuan), other / investment income (- 138 million yuan), fair value changes (- 1.159 billion yuan) and non-operating profit (- 20 million yuan).

The company announced production guidelines for 2022, increasing the output of copper, cobalt and niobium in minerals and increasing physical trade.

The company's production plan for 2022 is: TFM copper 22.7-267000 tons, cobalt metal 1.75-20500 tons, molybdenum metal 480000 tons, tungsten metal 0.61-7200 tons, niobium metal 0.82-9500 tons, phosphate fertilizer 1.22 million tons, NPM copper 2.25-26200 tons, NPM gold 1.72-2.02 ounces, trade 770-9.1 million tons. The median year-on-year output in 2021 changed by + 18.11%, + 2.7%,-15.78%,-23.19%, 3.07%, 0.89%, 3.47%,-14.9% and 29.29%, respectively.

The production of copper and cobalt in the Democratic Republic of the Congo has doubled in three years, and the resource advantage is rapidly turning into an output advantage. The 110K project was fully produced in September 2021, with an additional copper and cobalt production capacity of 88500 tons and 7280 tons, contributing a large increase in 2022 compared with the same period last year. The 2TFM mixed mine project has now completed the feasibility study and is expected to be put into production in the second half of 2023. After reaching production, the average annual output of copper and cobalt is expected to be about 200000 tons and 17000 tons respectively. 3KFM project: a green space project with great potential, and the feasibility research program is progressing steadily. With the gradual expansion of various projects, it is estimated that the company's copper production will reach 27.1pm 51.5 / 560000 tons from 2022 to 2025, and cobalt production will reach 1.9pm 2.5company4.5 / 52000 tons.

Profit forecast and investment advice: the company is an international mining giant with strong resource endowment and cost advantages. it is expected that the company will gradually complete the magnificent transformation from a simple mining investment enterprise to a two-wheel drive enterprise. We raise the company's profit forecast and expect the company's return net profit from 2022 to 2024 to be 84.41,91.41 and 13.167 billion yuan, with an EPS of 0.39,0.42 and 0.61 yuan, respectively, corresponding to the latest stock price (March 18). The PE is 13x, 12x and 8X respectively, maintaining the company's "recommended" rating.

Risk tips: project schedule is not as expected, prices of major metals such as copper and cobalt have fallen, geopolitical risks, and so on.