CITIC Securities: Profit growth in the metal industry in the first half of the year is further increasing, and the sector is expected to continue to perform strongly.

CITIC SEC released a research report stating that in the first half of 2025, the metal sector's profit growth accelerated further, with the sector maintaining strong performance. Among the sub-sectors, rare earths, tungsten, nickel cobalt tin antimony, and copper performed well. Dividends and fund holdings in the metal sector are also on the rise. The continuous rise in the sector has pushed valuation levels to the highest since 2022, but there is still room to reach the high point in 2021, with aluminum, lithium, nickel cobalt tin antimony showing significant undervaluation advantages. Looking ahead, the bank is optimistic about gold prices hitting new highs after the interest rate cuts, while copper prices are expected to continue to rise due to strong fundamentals. Supply disruptions catalyze opportunities at the bottom of battery metals, while the strategic value of rare earths and tungsten remains prominent, and aluminum sector profits and valuations are expected to resonate upwards. In addition, it is recommended to pay attention to materials related to solid-state batteries and AI servers. CITIC SEC's main points are as follows: Market review: Metal prices are rising across the board, with rare metals such as rare earths and tungsten performing exceptionally well. Since the beginning of 2025, the CITIC Nonferrous Metals Index has risen by 52.5%, outperforming the Shanghai and Shenzhen 300 Index by 34.8 percentage points; from the second quarter to date (as of August 29), the CITIC Nonferrous Metals Index has risen by 35.8%, outperforming the Shanghai and Shenzhen 300 Index by 20.1 percentage points. Among the sub-sectors, rare earths and magnetic materials, tungsten, and nickel cobalt tin antimony indices performed the best, with increases of 123%, 91%, and 67% respectively since the beginning of 2025, while copper and gold rose by 53% and 43%, and aluminum and lithium sectors lagged behind, with increases of 31% and 22% respectively. Performance and valuation analysis: Profit growth in the metal industry is rising, with aluminum, lithium, and nickel cobalt tin antimony sectors undervalued. In the first half of 2025, the non-ferrous metal industry's overall revenue increased by 6.7% year-on-year, while net profit attributable to the parent company increased by 37.5% year-on-year; for the second quarter, overall revenue and net profit attributable to the parent company increased by 5.6%/18.9% year-on-year, and by 16.3%/14.5% quarter-on-quarter, showing a significant improvement over the same period in 2024. Among the sub-sectors, rare earths and magnetic materials, gold, and copper performed the best, with net profits attributable to the parent company increasing by 624.1%, 58.8%, and 40.2% respectively in the first half of 2025, while aluminum sector had a low growth rate of 1.5%, and the lithium sector saw a year-on-year decline of 87.6%. In the second quarter of 2025, gold, nickel cobalt tin antimony, and tungsten saw quarter-on-quarter growth of 49.1%, 45.2%, and 43.8% respectively, while lead zinc and aluminum were relatively weak, with -15.7%/6.1%. As of August 29, 2025, the price-to-earnings ratio (TTM) for the non-ferrous metal sector was 21.2 times, the price-to-book ratio was 2.8 times, reaching the high since 2022, but still has room to reach the high point in 2021. Among the sub-sectors, aluminum, copper, and nickel cobalt tin antimony have lower PE valuations, with a forecasted PE of only 11/15/18 times in 2025; lithium and aluminum sectors have lower PB valuations, currently only 1.8/1.9 times. Holdings and dividend analysis: Funds continue to increase holdings in industrial metals, with significant improvement in industry mid-term dividends. As of the end of the second quarter of 2025, the market value of fund holdings in the non-ferrous metal industry was 127 billion yuan, ranking ninth among 30 industries in the market; the proportion of holdings in the fund equity investment market value was 1.8%, which was basically flat with the end of 2024, and overall remained at a high level. In terms of sub-sectors, the proportions of holdings of industrial metals/precious metals/rare metals were 2.3%/0.8%/0.9% respectively, with industrial metals and precious metals continuing to show a trend of increasing allocation and high allocation. In terms of individual stocks, stocks related to copper and gold saw significant increases in holdings, while aluminum showed a trend of concentrated reduction. In the first half of 2025, the overall dividend ratio of the metal industry reached 15.0%, an increase of 5.6 percentage points year-on-year; the gap between the overall dividend ratio of the A-share market narrowed from 9.5 percentage points to 5.4 percentage points. In the first half of 2025, the dividend ratios for industrial metals, precious metals, and rare metals were 16.9%, 8.4%, and 9.8% respectively. Metal industry market outlook: The sector is expected to continue to strengthen. Looking ahead, we are optimistic about gold prices hitting new highs after the interest rate cuts, with prices potentially reaching $4,000 per ounce; copper prices are expected to rise to $10,500 per ton, benefiting from strong fundamentals and a clear trend of rising valuations in the sector. Amid supply disruptions and the trend of high cutting and low concentration in the sector, opportunities at the bottom of battery metals are worth noting. Additionally, the strategic value of rare earths and tungsten remains prominent, and the aluminum sector's profits and valuations are expected to resonate upwards. In the metal materials sector, we expect themes such as solid-state batteries and AI servers to continue to be in a high prosperity period, with related materials such as solid-state electrolytes and copper foils expected to benefit. Risk factors: The risk of a significant decline in metal prices; the risk of the domestic economic recovery falling short of expectations; the risk of overseas economic recession; the risk of the Federal Reserve's interest rate cuts not meeting expectations; the risk of upstream supply growth exceeding expectations; the operational risk of enterprises' overseas assets; the risk of the progress of new production capacity construction by enterprises falling short of expectations; the risk of industry policy changes exceeding expectations; the risk of more severe safety and environmental challenges than expected.