Incidents:

The company released its semi-annual report for 2023. In the first half of 2023, the company achieved operating income of 14.501 billion yuan, -19.04% year-on-year; net profit of 1,313 billion yuan, -28.08% of the same period; net profit of non-attributable net profit of 1,279 million yuan, -28.9% year-on-year. Among them, net profit for the second quarter of 2023 was 794 million yuan, -28.06% year on year, +53% month on month, after deducting net profit of 769 million yuan, -27.66% year on year, and +50.8% month on month.

The share of high-end products increased, and profit margins improved month-on-month in the second quarter:

① Volume: According to the company's announcement, the company focuses on developing high value-added products represented by automobile boards, aviation boards, and power battery foils. The sales volume of high-end products accounted for about 14% of the company's total sales volume of aluminum products, an increase of about 1 percentage point over the same period last year; the gross profit of high-end products accounted for about 29% of the company's total gross profit of aluminum products, an increase of about 8 percentage points over the same period last year; ② Price: According to Tonghuashun, the average closing price of H1 aluminum in 2023 was 18,507 yuan/ton, down 13.7% year on year (or 2,934 yuan/ton); the closing price of Q2SHFE aluminum was 18,470 yuan/ton, down 0.4% from the previous year (or -74 yuan/ton), down 10.4% from the same period last year (or -2 yuan/ton)); The average price of alumina H1 was 2,964 yuan/ton, down 144 yuan from the previous year, and the average price of Q2 was 2,943 yuan/ton, compared to 42 yuan/ton; the average price of pre-baked anode H1 was 5,373 yuan/ton, down 765.6 yuan/ton, and the average price of Q2 was 4677 yuan/ton, down 1,392 yuan/ton;

③ Profit: According to the company's announcement, H1's overall gross sales margin in 2023 was 19.22%, down 1.69 pct from 2022; net sales interest rate was 10.26%, down 1.02 pct from 2022; net sales interest rate after deducting 8.82%, down 2.13 pct from 2022. Among them, the gross sales margin for the second quarter of 2023 was 19.26%, up 0.1 pct from Q1; net sales profit margin was 12.13%, up 3.97 pct from Q1.

Expenses continued to improve during the period, and the target auction revenue affected the net cash flow of investment activities:

① In 2023, H1's three fees totaled $450 million, a year-on-year decrease of $0.3 billion, mainly due to falling sales and management expenses;

② According to the company's announcement, the company publicly transferred a total of 336,000 tons of electrolytic aluminum production capacity, with a total transaction price of about 2,229 million yuan. The proposed sales target and corresponding fixed assets for disposal were used as disposal groups to hold for sale, and reported as “assets held for sale” according to the book value of the assets. Net cash flow from H1 investment activity in 2023 was $267 million, a year-on-year decrease of $427 million, mainly due to receipt of transfers of electrolytic aluminum indicators.

Consolidate the position of high-end aluminum processing, and profit growth can be expected:

① Automobile board: The company currently has a production capacity of 200,000 tons of automobile plates. The third phase of the 200,000 ton automobile board project is currently in the equipment procurement and bidding stage and is being stepped up. The long-term production capacity is planned to be 700,000 to 800,000 tons.

② Aviation board: The company currently has a production capacity of 50,000 tons of aviation boards. With the mass production of large domestic aircraft and the recovery of overseas markets, the company's aviation board business will continue to expand. The company actively supports the C919 project for large domestic aircraft and promotes the domestic replacement process for aviation boards.

③ Battery foil: The company focuses on promoting the development and certification of 10-12μm high-end products, consolidating cooperation with leading enterprises such as Ningde, BYD, China Aviation, and Guoxuan, and vigorously developing high-end aluminum processing products such as power battery foils.

④ Recycled aluminum: On the basis of the current production capacity of 100,000 tons of recycled aluminum, an additional 100,000 tons of recycled aluminum upgraded utilization project will be built. The company is speeding up the construction of a recycled aluminum project and plans to be completed and put into operation in December 2023.

Investment suggestions: We expect operating income of 273.61, 307.68, and 34.653 billion yuan, respectively, and estimated net profit of 34.43, 41.75, and 5.257 billion yuan, corresponding EPS of 0.29, 0.36, and 0.45 yuan/share, respectively. Currently, the stock price corresponds to PE 10.4, 8.6, and 6.8 times. Maintain the “buy-A” rating, and maintain the target price of 4.5 yuan/share for 6 months.

Risk warning: Aluminum prices fluctuate greatly, project progress falls short of expectations, terminal demand falls short of expectations, etc.