Core views
The company is one of the world's largest R&D and production bases for high-purity aluminum. Electrode foil production ranks among the highest in China, with outstanding performance in 2021. The company is mainly engaged in R&D, production and sales of new aluminum electronic materials and aluminum and alloy products. The main products are high-purity aluminum, electronic aluminum foil, electrode foil, aluminum products and alloys. The company has formed an “energy - (once) high purity aluminum - high purity aluminum/alloy - electronic aluminum foil - electrode foil” electronic new materials circular economy industry chain. As of December 31, 2021, the company had a production capacity of 180,000 tons of high purity aluminum, 55,000 tons of high purity aluminum liquid, 35,000 tons of electronic aluminum foil, and 23 million square meters of electrode foil. Benefiting from strong demand in the downstream market and rising aluminum prices, the company achieved operating income of 8.226 billion yuan in 2021, an increase of 43.88% over the previous year; it achieved net profit of 853 million yuan, an increase of 142.97% over the previous year.
Downstream demand in the industrial chain is strong, and the company is expected to continue to benefit as a leader in the industry. In terms of aluminum and alloy products, the company is a major producer of aluminum and alloy products in China. The scale and quality of its products are at the leading level in the industry. The aluminum purity of the production has reached 5N5 and has broken through 6N technology. With the steady development of the downstream consumer electronics and construction industries, the increase in the amount of aluminum used in automotive lightweight and new energy vehicles, and the increase in demand for high-end aluminum products, the company's aluminum and alloy business performance is expected to grow. In terms of electrode foils, 5G base stations, new energy vehicles, and solar power generation are developing rapidly, and the prosperity of the aluminum electrolytic capacitor industry is rising, which will bring increased demand for electrode foils. The company's electrode foil production and sales volume has been ranked in the top three in China all year round. Its production capacity scale and technical experience advantages will help the company seize development opportunities.
The allocation of shares to raise capital for expansion, and the layout of high-end products will drive the company's performance to further improve.
In April 2021, the company distributed shares to raise capital to expand the production capacity of 15,000 tons of high-purity aluminum, 3,000 tons of high-strength and high-toughness aluminum alloy large-section castings, and 500 tons of ultra-high purity aluminum-based sputtering target billets. It is expected to be completed by the end of 2022 or the first half of 2023. With the rapid development of aerospace, rail transit, semiconductors and other fields, demand for high-strength and high-toughness aluminum alloys and targets has increased. After the project is completed and delivered, it is estimated that sales revenue will increase by an average of 724 million yuan per year, which will bring new growth to the company's performance.
Investment advice
Along with the sharp rise in product volume and price, the company's future performance will continue to expand. We expect the company's net profit from 2022/2023/2024 to be 1,108/13.16/1,608 billion yuan respectively, and the corresponding EPS to be 0.82/0.98/1.19 yuan, respectively. Based on the closing price of 10.74 yuan on August 23, 2022, the corresponding PE is 13.06/10.99/9.00 times, respectively. Based on the prosperity of the industry, I am optimistic about the company's development. Covered for the first time, giving it a “Highly Recommended” rating.
Risk Reminder
Environmental protection policies have become stricter, downstream demand has fallen short of expectations, and the progress and profit of fund-raising and production expansion projects have fallen short of expectations.