\u3000\u3000 Metallurgical Corporation Of China Ltd(601618) (601618)
Events
According to Xinhua news agency, Russian President Vladimir Putin signed an order on the evening of February 21 to recognize the “Donetsk people’s Republic” and “Lugansk people’s Republic” in eastern Ukraine, and the situation between Russia and Ukraine has escalated. On the evening of February 22, LME nickel rose to US $25000 / ton for the first time since 2011.
Brief comment
Russia is the world’s third largest nickel producer and nickel exporter. The escalation of the situation in Russia and Ukraine has triggered concerns about Russian nickel exports, causing nickel prices to rise. Russia is the third largest nickel producer in the world. According to the data of the US Geological Survey, Russia’s nickel production accounted for 11.3% of the world in 2020. It is preliminarily estimated that the proportion will be about 9.1% in 2021, second only to Indonesia and the Philippines. Meanwhile, Russia is an important nickel exporter in the world. In 2021, the output of primary nickel in Russia was about 146000 tons, of which the output of refined nickel was about 121000 tons, accounting for about 5% of the global primary nickel. Although Russia’s nickel exports are normal at present, the situation between Russia and Ukraine is escalating. The West may impose sanctions on Russian bulk commodities, which has raised market concerns about Russian nickel exports and pushed up nickel prices. On the evening of February 22, LME nickel rose to US $25000 / ton for the first time since 2011.
The resource development business continues to improve, which has become the second curve of the company’s profit growth. Benefiting from the high nickel price in 2021, the company’s resource development business continued to improve. In the first half of 2021, the resource development business contributed a profit of 1.09 billion yuan, accounting for about 13.6% of the total profit in the first half of the year. The company’s Ruimu laterite nickel cobalt project ranks first in the world in terms of production rate of hydrometallurgical laterite nickel ore, and has achieved over production for four consecutive years. The revenue of Ruimu laterite nickel cobalt project in the first three quarters of 2021 was 3.19 billion yuan, contributing 1.22 billion yuan of profit, accounting for about 11.5% of the total profit in the first three quarters. Resource development business has become the second curve of the company’s profit growth.
With the tense global nickel supply and demand pattern and the escalation of the situation in Russia and Ukraine, it is expected that the nickel price will continue to remain high, and the company’s resource development business is expected to continue to grow high in 2022. The high boom of downstream new energy vehicles has driven strong demand for nickel. However, due to the covid-19 epidemic, the production progress and sales of nickel mines in Indonesia are less than expected, coupled with the decline in the output of vale and Russian nickel, resulting in a shortage of nickel supply. According to the world Bureau of metal statistics, the supply shortage in the global nickel market reached 144300 tons in 2021. With the originally tense nickel supply and demand pattern superimposed on the escalation of the situation in Russia and Ukraine, we expect the nickel price to remain high. The company’s three major mining projects in production are rich in reserves and possible production expansion plans. In addition, the ainak copper mine project in Afghanistan may be restarted. It is expected that the company’s resource development business, especially the Ruimu laterite nickel cobalt project, will continue to grow rapidly in 2022, providing strong support for the high growth of the company’s performance.
Maintain profit forecast and buy rating. We predict that the company’s EPS will be 0.49/0.60/0.72 yuan from 2021 to 2023, maintaining the buy rating and the target price of 5.33 yuan.
Risk tip: the promotion of resource development business is not as expected.
