2024 and 1Q25 results both beat our expectations

Huayou Cobalt announced its 2024 results: Revenue fell 8% YoY to Rmb60.9bn and net profit attributable to shareholders grew 24% YoY to Rmb4.2bn. In 4Q24, revenue rose 1.6% YoY and 0.1% QoQ to Rmb15.5bn, and net profit attributable to shareholders grew 236% YoY to Rmb1.13bn (-16% QoQ). The 2024 results beat our expectations mainly due to increased profit from the nickel segment. The firm also announced its 1Q25 results: Revenue rose 19% YoY and 15% QoQ to Rmb17.8bn, and net profit attributable to shareholders grew 140% YoY and 10.4% QoQ to Rmb1.25bn. The firm's 1Q25 results beat our expectations mainly due to a QoQ rise of 25% in cobalt prices.

Key projects progressing smoothly; output and sales volume of nickel, cobalt and lithium increased substantially YoY. According to

the announcement, the firm’s Huafei project reached its designed capacity at end-1Q24, with output steadily exceeding planned level; the output of Huayue project has been exceeding its planned level; operation of the Huake project remained stable. The production capacity of the Arcadia lithium mine project has increased substantially.

The firm’s output of nickel, cobalt and lithium products grew 50% YoY, 20% YoY and 261% YoY in 2024, and sales volume of these products rose 46%, 13% and 377% YoY in 2024. Its LiB material output and sales volume declined YoY mainly due to the firm's efforts to reduce shipments of some low-margin products. Output of ternary precursors and cathode materials fell 18% and 28% YoY, and their sales volume slid 20% and 31% YoY in 2024. Output and sales volume of copper products fell 0.5% YoY, but rose 2.8% YoY in 2024.

Integrated cost advantage emerges; gross margin of nickel and cobalt products grows despite headwinds. The firm has steadily

improved the quality of its operations through structural adjustment, business volume expansion, and cost reduction. Prices: According to Wind, average prices of LME nickel, MB cobalt, domestic battery-grade lithium carbonate, and LME copper had YoY changes of -21%, -25%, - 64%, and +9% YoY in 2024. Gross margin of the firm's nickel, cobalt, lithium, and copper products had YoY changes of +8.5ppt, +6.8ppt, -1ppt, and +1.3ppt YoY in 2024.

Trends to watch Strengthening synergies in the value chain; rising cobalt prices to

boost earnings. According to corporate filings, the firm adheres to the transformation and upgrading path of "controlling resources, expanding markets, and improving capabilities". Indonesia: It aims to make its 50,000t Huaneng precursor project reach designed capacity and standards as soon as possible. The firm intends to advance the construction or preliminary work of the Pomalaa and Sorowako hydrometallurgy projects in an orderly manner, and continue to promote the development and cooperation of nickel ore resources. Europe: The firm is steadily advancing its cathode material project in Hungary under strict control of investment costs. Africa: The company implemented a lithium sulfate project in Zimbabwe to considerably reduce the production cost of lithium salts.

The Democratic Republic of the Congo (DRC) decided to suspend cobalt exports for 4 months on February 24. Cobalt prices rebounded strongly

from the bottom. Given the strategic nature of cobalt resources, we expect the DRC to continue to take measures to control output and raise prices after suspending cobalt exports for 4 months. As such, we think average cobalt prices may trend upward. We estimate that cobalt associated with hydrometallurgy nickel in Indonesia accounted for more than 30% of the firm’s total cobalt output in 2024. We expect the firm to fully benefit from rising cobalt prices. In our view, although cobalt sales volume in the DRC could be pressured, but cobalt price upside may be greater than before.

Financials and valuation

Given rising cobalt prices and smooth profit growth in the nickel segment, we raise our 2025 earnings forecast 68% to Rmb4.9bn and introduce our 2026 earnings forecast at Rmb5.4bn. The stock is trading at 12x and 11x 2025e and 2026e P/E. Maintain OUTPERFORM. To reflect the upward earnings forecast revision, we raise our TP 33% to Rmb43.34 (15x and 14x 2025e and 2026e P/E; 28% upside), although demand concerns caused by tariff friction weigh on valuation.

Risks

Sharper-than-expected decline in metal prices; disappointing progress of projects; negative surprises in tariff friction.