Incident: The company released its three-quarter report. In 2022, Q1-Q3 achieved operating income and net profit of 6.325 billion yuan and 517 million yuan, respectively, compared to +36.20% and +41.91%; Q3 achieved operating income and net profit of 2,226 million yuan and 208 million yuan, respectively, in a single quarter, +44.97% and +67.77% year-on-year, +5.35% and +1.41%.
The increase in sales volume offset the decline in aluminum prices: according to the price of non-ferrous metals in Yangtze River, the average price of electrolytic aluminum in Q2 was 21,000 yuan, and the average price in Q3 fell to 18,000 yuan, a decrease of 11.6%. In the context of falling aluminum prices, the company's operating income increased month-on-month, or due to an increase in the sales volume of the company's aluminum products. At the same time, fluctuations in the US dollar enabled the company to obtain revenue. Financial expenses for Q3/Q2 were -0.22/ -05 billion yuan respectively, and the exchange earnings increased to net profit.
A fixed increase of 1 billion dollars to expand production capacity by 500,000 tons in the future: In February '22, the company announced a fixed increase plan. It plans to raise 1 billion yuan to invest 1 billion yuan in Chongqing to build a high-end aluminum sheet strip and foil project with an annual output of 150,000 tons for new energy vehicles (total cost of 1.98 billion yuan). The construction period is 36 months, and the estimated payback period after tax is 5.90 years (not including the construction period). Among them, production capacity distribution: 40,000 tons of water-cooled slabs, 50,000 tons of water-cooled plates, 33,500 tons of rectangular/square battery cases, 40,000 tons of aluminum strip for strip batteries, 30,000 tons of battery foil, 50,000 tons of aluminum foil for aluminum-plastic films for soft-pack batteries, and 23,500 tons of composite brazed aluminum sheets. The company currently has production capacity of 140,000 tons and 200,000 tons in Shanghai and Chongqing respectively. After the fundraising project has reached delivery, the company has a production capacity of nearly 500,000 tons.
Demand for new energy vehicles drives performance: The company's business is divided into two segments: aluminum heat transfer materials and automobile aluminum sheet strip foil. In recent years, benefiting from the growing demand for water tanks and battery cooling in new energy vehicles, the aluminum heat transfer materials sector has received additional business growth. The growth rate in 19/20/21 was 9.5%/13.1%/57.1%, respectively; in the aluminum plate with foil sector, the company has mature new energy sector products such as water-cooled plates and battery cases (bar/square battery case), and the battery case business has a growth rate of 2.1%/207.3%, respectively. For aluminum-plastic film materials and battery foils with high added value, the company is currently concentrating its efforts on development, verification and process improvement, hoping to achieve domestic substitution of current high-end imported aluminum-plastic film products in the future. The company's Q3 R&D expenses reached 100 million yuan, +59% year on year and +41% month on month, making technical reserves for expansion of production and new product development.
Investment suggestions: Regardless of the impact of fixed increases on performance, we expect the company to achieve operating income of 8665/90.01/9.408 billion yuan and net profit of 853/953/1,087 billion yuan from 2022-2024. The corresponding PE was 18.1/16.2/14.2 times, respectively, and a “increase in weight” rating was given.
Risk warning: the risk that demand for downstream new energy vehicles will not meet expectations; the risk of rising prices of aluminum ingots; the risk of product price reductions due to excessive market supply; risk of repeated epidemics.