Key points of investment
Performance summary: The company released its 2022 annual report. In 2022, the company achieved operating income of 11.066 billion yuan, an increase of 10.83% over the previous year; realized net profit of 200 million yuan to the mother, a decrease of 41.62% over the previous year; the net profit returned to the mother after deduction was 74 million yuan, a decrease of 69.56% over the previous year. The company plans to distribute a cash dividend of 0.5 yuan (tax included) for every 10 shares to all shareholders.
Profits from recycled aluminum are under heavy pressure, dragging down the company's performance. The decline in the company's performance in 2022 was mainly due to a sharp decline in gross profit per ton of aluminum alloy ingots. In 2022, the company achieved sales of 635,800 tons of aluminum alloy ingots, an increase of 6.27% over the previous year. Among them, the sales volume of cast aluminum alloys and deformed aluminum alloys was 611,800 tons and 24,000 tons respectively.
In 2022, the company's recycled aluminum alloy ingot profits came under heavy pressure due to factors such as falling aluminum prices, slow procurement pace for some customers, poor business activities in multiple regions, and temporary shutdown of production at the Guangdong base. According to our estimates, the gross profit per ton of the company's aluminum alloy ingot products in 2022 was 361 yuan, down 481 yuan from 2021, the lowest level in history.
The company's Q4 performance was greatly affected by the epidemic. The company's net profit for Q1-Q4 in a single quarter in 2022 was 127 million yuan, 85 million yuan, 30 million yuan, and -42 million yuan respectively, declining quarterly from quarter to quarter. The company's Q4 losses were mainly due to poor business activities in many regions.
Demand for recycled aluminum is improving in the medium to long term, and profit per ton will bottom out. As the impact of the epidemic on the economy gradually dissipates, the domestic economy is expected to recover in 2023, and demand for recycled aluminum will improve. In the context of the policy of limiting the production capacity of electrolytic aluminum, recycled aluminum is expected to become an important supplement to China's aluminum supply, and there is broad scope for future demand.
The “14th Five-Year Plan” clearly states that recycled aluminum production will reach 11.5 million tons by 2025. According to statistics from the Recycled Metals Branch of the Nonferrous Metals Industry Association, China's recycled aluminum production in 2022 will be about 8.55 million tons. The three-year average compound growth rate reached 10.4%. As demand for recycled aluminum accelerates, the company's profit per ton of recycled aluminum products will rise relatively quickly.
The rapid expansion of production capacity has contributed to the continuous growth of the company's performance. The first phase of the 400,000-ton recycled aluminum casting capacity plant at the company's Anhui production base has put the 810,000 ton production capacity plant into trial operation in Q4 2022. Meanwhile, the construction of the recycled aluminum casting capacity plant in Shunbo, Hubei has been completed. As the company's Hubei and Anhui bases are gradually put into operation, the production capacity of the company's cast aluminum alloy ingots is expected to reach 1-1.1 million tons in 2025. The rapid increase in production and sales will drive the company's performance to continue to grow.
The focus is on laying out the deformed aluminum alloy market, and the demand space is broad. In 2021, the company acquired Chongqing Aobo to enter the deformed aluminum alloy market. Through technological transformation in 2022, Chongqing Aobo turned a loss into a profit. At the same time, the company is steadily advancing the Hubei Shunbo deformed aluminum bar project and is expected to achieve some mass production in 2023.
As the company continues to develop the deformed aluminum alloy business, the company's downstream application market will expand to NEV-related industries, photovoltaic industry, traditional automobile industry, civilian deformed aluminum, etc., with broad market space.
Profit forecast and investment advice: As domestic demand for recycled aluminum continues to recover, the company's profit per ton of products will gradually rise. Furthermore, as the company's Hubei and Anhui bases continue to be put into operation, the production and sales volume of the company's recycled aluminum products has increased rapidly, driving the company's performance to further improve. We expect the company's net profit to be 320, 553, and 665 million yuan respectively in 2023-2025, EPS of 0.73, 1.26, and 1.52 yuan respectively. The closing price corresponding to PE on March 31 will be 17.8, 10.3, and 8.6 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: downstream demand has declined sharply, project progress falls short of expectations, etc.