The company released its 2023 mid-year report. 23H1 achieved operating income of 9.219 billion yuan, -19.46% year-on-year; net profit of 350 million yuan, -41.28% of the same period; net profit of 304 million yuan after deducting non-homologated net profit of 304 million yuan, -48.69% of the same period.
H1 performance declined sharply year over year, while Q2 performance rebounded month on month. 23H1 The main reasons for the loss of company performance are:
(1) Domestic and foreign demand is weak. Domestic: The aluminum processing industry faces a long de-inventory cycle for downstream related industries; overseas: high inflation in Europe and the US led to sluggish consumption, and customers overstocked in 2022. Overall exports of aluminum foil in the first half of the year fell short of expectations, down about 9.9% year on year. (2) The global economic environment is severe and the trade situation is tense. 23Q2's performance improved markedly from month to month, achieving operating income of 4.71 billion yuan, -18.77%/+4.46% year on year; net profit of 196 million yuan, year-over-year/48.68%/+26.45%, respectively; net profit after deducting non-attributable net profit of 162 million yuan, -59.60%/14.08% year on year.
Driven by new energy vehicles and energy storage, demand for aluminum foil for batteries is expected to continue to be high. In the context of the dual carbon era of energy transformation, the Chinese market will still maintain its position as the world's largest power battery market, and the lithium battery industry will usher in clearer development opportunities. GGII expects global power battery shipments to reach 1550 GWh by 2025, and 3000 GWh by 2030. The corresponding demand for battery aluminum foil is 542,500 tons and 1.05 million tons, respectively. The current growth rate of battery aluminum foil production capacity expansion in China is still unable to meet the expanding needs of the new energy industry. Coupled with the electrification of the energy storage market and segments, and the marketization of sodium-ion batteries, the global demand for power batteries will exceed 10 TWH in the next 10 years, requiring the power battery industry to accelerate the expansion of production capacity, which in turn will drive the demand for battery aluminum foil to rise dramatically.
Accelerate overseas expansion and seize the European market. The company is actively promoting its expansion at home and abroad. It has 5 production bases in Zhenjiang, Hangzhou, Inner Mongolia, Lingdu, Italy, and Rayong, Thailand. It is currently the only “going global” aluminum processing enterprise in China. The electrification rate in overseas markets is low and the long-term space is broad. Through its overseas layout, the company is expected to take the lead in supplying 114 GWh of production capacity in Europe. Furthermore, the company has close cooperation with leading companies such as BYD and LG, and is expected to fully benefit from the high growth of overseas markets and increase overseas and global market share. In July '23, the company completed a 100% equity acquisition of Italian company Slim Aluminum and its two subsidiaries. At this point, the company already has a complete industrial chain in Europe. In the future, it can rely on advantages such as the integrity of the upstream and downstream industrial chains, strong new product development capabilities, and a complete sales network to further increase market competitiveness.
Maintain a “Highly Recommended” investment rating. Considering the decline in the company's performance due to factors such as the slowdown in demand growth in the first half of the year and the combined removal of inventory from the industrial chain, we adjusted our profit forecast. We expect the company to achieve net profit of 961, 12.24, and 1,528 billion yuan in 2023-2025, corresponding to a price-earnings ratio of 15.1, 11.8, and 9.5 times, maintaining a “highly recommended” investment rating.
Risk warning: Demand falls short of expectations, slow release of production capacity, fluctuations in the secondary market, etc.