Events:

The price of electrolytic aluminum rose and fell during the year. In the first three quarters, driven by the reform on the supply side of electrolytic aluminum in China, aluminum prices strengthened all the way, with the largest cumulative increase of 34%. In November, the reform on the supply side of electrolytic aluminum fell short of market expectations, coupled with the rapid decline in alumina prices and the collapse of costs, electrolytic aluminum prices fell back at a high level, and the previous increase fell by half. However, since mid-November, the production costs of electrolytic aluminum companies have been upside down, coupled with the decline in social inventories, aluminum prices are expected to gradually stabilize, waiting for more news to drive prices back up.

Comments:

1. The price of electrolytic aluminum is expected to stop falling and rise.

The negative emotion caused by the disappointment of the reform on the supply side of electrolytic aluminum is basically digested. We believe that the changes in the industry structure brought about by the supply reform of electrolytic aluminum should not be underestimated. With the decline of high inventory levels, the price of electrolytic aluminum is expected to rise steadily, and the company's profits will gradually improve.

2. Optimize the debt structure through multiple channels to reduce the drag on profits.

High financial costs have always been a pain point for the company. The average value in recent 5 years is as high as 940 million yuan. The company this year through short-term replacement of long-term, financial leasing business and other ways to reduce the cost of non-bank capital. Financial expenses are expected to drop by 100 million yuan this year, and with the progress of work, it is expected that the decline in capital costs will increase year by year.

3. Increasing the holdings of controlling shareholders and senior executives reflects confidence

From May 12 to November 28, 2017, controlling shareholder Yulian Group and senior management bought a total of 12.014 million shares at a share price of less than 5 yuan per share, accounting for 0.6898% of the company's total shares, with an average increase cost of 4.58 yuan per share.

On August 24, the controlling shareholder agreed to complete the buyback securities transaction and repurchase 60 million shares with unlimited sales conditions. After two increases, the proportion of controlling shareholders increased from 49.84% to 53.92%.

4. the quantity of high-precision aluminum will see the benefit.

The company's 500000 tons / annual capacity aluminum intensive processing project production technology of the main equipment are the world's advanced imported equipment in the same industry, the overall equipment has reached the world's leading level. With the gradual commissioning of the company's aluminum intensive processing project, the production capacity of related products will also be gradually released. At present, the main products are high-performance aluminum alloy sheet, can body, can cover, pull ring material, high-grade double zero aluminum foil billet and high-grade printing plate base. Hot rolling and medium and heavy plates were put into production in 2015, while high value-added cold rolling was put into production at the end of last year and the second production line this year.

Overall, the production of high-precision aluminum this year is expected to be close to 300000 tons, nearly double that of last year. Next year, production is expected to further increase to 350000 tons, with a rising share of high value-added cold rolling production, which will help high-precision aluminum to generate 220 million gross profits next year.

5. Production restriction in heating season affects output.

According to the company announcement, from November 15, 2017 to March 15, 2018, the off-peak production of the company and its subsidiaries is expected to affect raw aluminum production of 72000 tons and carbon production of 29000 tons, accounting for 10% and 17% of the total annual output, respectively.

During the period of off-peak production, the company will ensure that the output of aluminum processing products will not be affected, make use of the opportunity of outage to carry out energy-saving transformation of the outage electrolytic cell, and continue to tap potential and increase efficiency in all fields of the company. minimize the adverse impact of off-peak production on the company.

6. Recommendation logic

The company's share price rose from the bottom of 4.4 yuan / share in early June to a high near 8 yuan / share, and the decline has been basically exhausted.

Although the aluminum price pullback, but the overall is still high, the near future is expected to stop falling temperature, waiting for further bullish news to start a new round of offensive. The rise in aluminum prices and the release of high-precision aluminum have thickened the company's profits, and the decline in financial costs has effectively reduced the profit burden. The company is expected to make a net profit of 180 million yuan in 2017, corresponding to PE46 times. In 2018, the net profit was 320 million yuan, and PE dropped to 25 times.

Risk hint: aluminum price is lower than expected, and the progress of the project under construction is not as expected.