Incident: The company released its 2023 semi-annual report. In 2023, H1 achieved operating income of 8.13 billion yuan, an increase of 2.1% over the previous year; net profit for the return mother was 409 million yuan, a year-on-year decrease of 172%. After deducting non-net profit of 412 million yuan, a year-on-year decrease of 172.4%. Q2 achieved operating income of 3.91 billion yuan, a year-on-year decrease of 18.2% and a year-on-year decrease of 7.4%; net profit of Gimu was 136 million yuan, a year-on-year decrease of 133.1%, and a year-on-year increase of 50.34%. After deducting non-net profit of 137 million yuan, a year-on-year decrease of 133.2% and a year-on-year increase of 50%. The results are in line with the performance forecast.
Cost reduction and efficiency increase, company performance improvement month-on-month: 1) Operating income: Q2 Operating income fell month-on-month, mainly due to a drop in the price of pre-baked anodes (the average price of pre-baked anode Q2 fell 20.3% to 5,485 yuan/ton), but the decline narrowed, mainly due to an increase in pre-baked anode sales volume and the merger of the Xinyuan anode project (Xinyuan Anode consolidated revenue of about 160 million yuan in 4-6 months). 2) Net profit: The company's Q2 performance improved significantly from month to month. On the one hand, it benefited from new business consolidation (Xinyuan negative Q2 and net profit of 407,000 yuan), and on the other hand, the company's operating costs lagged behind changes in raw materials and product market prices. The average price of petroleum coke in Q1 and Q2 dropped by about 26.7% (the average price drop of petroleum coke in Q4 2022 and Q1 in 2023 was about 14.9%). The reduction in raw material costs was greater than the price drop. Combined, the company reduced costs and increased efficiency through refined management, and the company's performance improved month-on-month. 3) Financial analysis:
The company's Q2 financial expenses improved significantly month-on-month (Q2 financial expenses fell 63 million yuan month-on-month), mainly due to a decline in corporate debt (Q2 company's total debt fell 1,068 million yuan month-on-month). The company's balance sheet continued to be optimized, and performance improved month-on-month.
Profit is expected to improve. New projects can be expected: 1) Petroleum coke Q2, and the average price drop in July-August is about 16.5%, the average price of pre-baked anode Q3 has dropped by about 9.1% month-on-month, and since July, pre-baked anodes have stopped falling and stabilized. We expect that with the resumption of downstream electrolytic aluminum production in Yunnan, demand will pick up, the price of pre-baked anodes is expected to rise, and the company's product profit space is expected to further open up. 2) Inner Mongolia Xinyuan's new 40,000 tons/year graphitization project and the first phase of the Shengyuan anode project were put into operation with a graphitization capacity of 25,000 tons/year. The 770MW photovoltaic power generation project has been mainly completed. The company expects to be electrified in the second half of 2023. The Shandong Innovation Phase II project, the Longxi Suotong 300,000 tons/year aluminum carbon materials project, and the Hubei Zhijiang 1 million tons/year calcined coke project have been officially launched. The Qijiang District has now signed an “Investment Promotion Agreement” with the local government for the production of 250,000 tons/year of high-conductivity and energy-saving aluminum carbon materials and 50,000 tons/year of high-end anode materials for lithium batteries. When all projects are put into operation and implemented, the company's share of the new energy business is expected to increase further, and the scale advantage on the procurement side is expected to further increase. 3) The company and UAE Global Aluminum (EGA) signed a “Memorandum of Understanding on Investment” to invest in Phase I and Phase II of the 600,000 tons/year pre-baked anode project through a joint venture in the UAE. The implementation of the project will help the company further explore the global market and lay the foundation for global cooperation.
Profit forecast: We expect the diluted earnings per share from 2023-2025 to be 0.27 yuan, 1.71 yuan, and 2.53 yuan, respectively. The PE corresponding to the current stock price is 61x, 10x, and 6x, respectively.
Risk factors: Product prices dropped sharply, and project production capacity fell short of expectations.