The company's net profit for the first half of the year - 232 million yuan
The company's 18H1 revenue was 6.933 billion yuan, up 19.50% year on year; Guimu's net profit was -232 million yuan, down 459.15% year on year; 18Q2's net profit for the single quarter was 52 million yuan, down 185.26% from the previous year, and a loss of 128 million yuan over the previous year. The company's performance is lower than our expectations, the company's self-sufficiency rate of raw materials is low, and future profit levels may also face pressure from rising raw material prices. We adjusted the EPS forecast for 2018-20 to -0.03/0.01/0.05 yuan, but considering that the company's current PB valuation is significantly lower than that of comparable companies, we still maintain the company's shareholding increase rating.
The increase in aluminum prices was less than that of raw materials, and the gross margin of the company's aluminum products decreased significantly
According to Wind Changjiang Nonferrous Metals spot price data, the average domestic raw aluminum price in the first half of the year was 14,308 yuan/ton, up 5.07% from 2017 H1, but down 5.99% from 17H2. However, the year-on-year increase in the prices of raw materials such as alumina, coal, and pre-baked anodes surpassed that of raw aluminum, and the gross margin of the company's aluminum products declined markedly. In the first half of the year, the company's aluminum products achieved gross profit of 107 million yuan, with a gross margin of about 2.5%, a year-on-year decrease of nearly 12 percentage points. The company's coal business achieved gross profit of 36 million yuan in the first half of the year, with a gross margin of about 15%. However, the company's balance ratio is still over 75%, and financial expenses for the first half of the year were 518 million yuan, which dragged down overall performance.
The company's aluminum processing products have made a breakthrough
According to the company's interim report, in the first half of the year, the company made gains in increasing the added value of products, and completed the development of 0.256 mm tank materials, 0.208 mm super strong tank covers, and power battery cases. The monthly output of intermediate alloy products mass-produced by the subsidiary Yinhu Aluminum has reached more than 900 tons, and the high-end automobile aluminum alloy wheel project invested by the subsidiary Anyang Gaojing has put into operation a production line with an annual output of 1.5 million units. Furthermore, the company strictly controls production costs. By expanding the scope of application of the new steady current energy-saving electrolyzer, the subsidiary Zhongfu Aluminum achieved an average ton of aluminum DC power consumption reduced by about 500 degrees compared to traditional tanks.
The company may be pressured by rising alumina prices in the second half of the year
There may still be some pressure on the company's performance in the second half of the year, mainly because the price of alumina may rise, and the company lacks self-sufficiency in alumina. We believe that there are three main logic behind the rise of domestic alumina in the second half of the year: affected by environmental protection, bauxite prices in some regions rose to ten-year highs to support alumina prices; expectations of overseas alumina shortages were strong, increasing domestic exports, and marginal domestic alumina supply tightened in the second half of the year; the Blue Sky Defense Battle Plan was newly incorporated into the Fenwei Plain. According to Aladdin, the area has an operating capacity of over 17 million tons of alumina. If production limits are implemented during the heating season, the marginal tightening of alumina supply in the second half of the year will be even more obvious.
The company's PB valuation is significantly lower than the average value of comparable companies, maintaining the rating for increasing holdings
The price of electrolytic aluminum in the first half of the year was lower than expected. We lowered the average tax-inclusive price assumption for electrolytic aluminum in 2018-20 to 1.44/146/14,800 yuan/ton, and raised the 2018-20 raw material alumina price forecast to 3100/3150/3,200 yuan/ton according to market conditions. Other assumptions for profit forecasting remained unchanged. Our current report predicts that the company's EPS in 2018-20 will be -0.03/0.01/0.05 yuan respectively, down 0.13/0.12/0.16 from the previous report. We expect the company's 2018 BVPS to be $2.95. According to the 2018 Wind forecast PB valuation, which is 1.44 times that of comparable companies, considering that the company may lose money this year, we gave the company a certain valuation discount, gave it 0.90-1.10 times PB in 2018, corresponding to the target price of 2.66-3.25 yuan, maintaining the increase in holdings rating.
Risk warning: aluminum prices are falling; raw material costs are rising sharply; the company's output falls short of expectations, etc.