Events:
On October 27, 2023, Suotong Development released three quarterly reports. From January to September 2023, the company achieved total operating income of 11.93 billion yuan, a decrease of 12.98% over the same period last year; net profit of-332 million yuan; net profit of non-return to mother of-331 million yuan; and basic earnings per share of-0.69 yuan. In the third quarter, the company achieved a total operating income of 3.8 billion yuan, a decrease of 33.87% over the same period last year; a net profit of 77 million yuan, a decrease of 80.66% over the same period last year; and a net profit of 80 million yuan, down 79.54% from the same period last year, and basic earnings per share of 0.14 yuan. The company intends to pay 0.56 yuan per share (including tax).
The price of petroleum coke and coal tar pitch has stabilized, and the profit inflection point may have come. Due to the unilateral downward influence of the price of petroleum coke and coal tar pitch in the first half of 2023, the company's impairment of raw materials and finished products led to performance losses. The price of petroleum coke has bottomed out since March 2023, and the price of coal tar pitch has rebounded sharply since May 2023. The company's product pre-baked anode is priced by the cost-plus method, and as the price of raw materials stabilizes, the price of pre-baked anode has been stable since June 2023. The stabilization of raw materials and product prices have led to the company no longer counting asset impairment losses in the third quarter, the company has made a profit in the third quarter, and the profit inflection point may have arrived.
The project under construction will be put into production in 2024, with full growth.
In 2023, the company plans to produce 2.86 million tons of pre-baked anodes, an increase of 180000 tons over the same period last year. With the Shandong Innovation Phase II 340000 tons and Longxi Suotong 300000 tons aluminum carbon material project put into production in 2024, it has made a significant contribution to the company's prebaked anode output in 2024. According to the plan, the total domestic production capacity of pre-baked anodes will increase to 5 million tons by the end of 2025.
The increase of Electrolytic Aluminum production in China leads to the increase of anode demand
The downstream of pre-baked anodes is mainly the electrolytic aluminum industry. China's electrolytic aluminum output in 2022 is 40.43 million tons, which is still far from the ceiling of domestic electrolytic aluminum production capacity, which will lead to an increase in domestic demand for prebaked anodes.
Earnings forecast, valuation and rating
We estimate that the company's operating income from 2023 to 2025 will be 147.68 million yuan 184.98 percent, year-on-year changes-23.88 percent 25.26 percent, 18.07 percent, and three-year compound growth rate 4%; net profit from home will be 0.22 percent 12.97 billion yuan, respectively; year-on-year changes-97.56 percent, 5766 percent, 11.77 percent; and three-year compound growth rates, 17 percent, will be 0.04 yuan / 2.4 yuan / 2.68 yuan, respectively. With reference to the comparable company valuation, we give the company 9.8 times PE in 2024, with a target price of 23.52 yuan, maintaining a "buy" rating.
Risk tips: downstream production reduction, projects under construction are not as expected, raw materials and product prices fluctuate.