3Q23 performance is in line with our expectations
The company announced 3Q23 results: 1-3Q23 achieved revenue of 188.404 billion yuan, year-on-year-17.23%; return to the mother net profit of 5.352 billion yuan, year-on-year-0.85%, deducting non-net profit 4.93 billion yuan, + 10.76% year-on-year. 3Q23 revenue 54.342 billion yuan, year-on-year-20.85%, month-on-month-19.83%; return to the mother net profit of 1.936 billion yuan, year-on-year + 105.35%, month-on-month + 20.70%. The performance is in line with our expectations, and the increase in 3Q23 performance compared with the previous month is mainly due to the rise in volume and profit of the original aluminum plate.
The volume and profit of the original aluminum plate of 3Q23 rose, and the company's performance improved significantly. In terms of the output of major varieties, 3Q23 achieved metallurgical alumina output of 4.23 million tons, year-on-year-3.64%, month-on-month ratio-0.47%; fine alumina output of 950000 tons, year-on-year + 7.95%, month-on-month ratio + 23.38%; electrolytic aluminum output of 1.87 million tons, year-on-year-0.53%, month-on-month ratio + 22.22%; coal output of 3.47 million tons, year-on-year + 35.55%, month-on-month ratio-1.42%. From the performance point of view, the volume and profit of the original aluminum plate brought about a significant improvement in the company's performance, with a 3Q23 gross profit margin of 15.77%, the same / month-on-month ratio + 8.08ppt/+5.84ppt. First, the production capacity of 3Q23 in Yunnan has been restored, and the output of electrolytic aluminum is 22.22% higher than that of-0.53%; second, the price of aluminum ingots in the Yangtze River is 1.7% higher than that of + 2.4%; and third, the cost is reduced. The prices of alumina, power coal and pre-baked anode are-1.8%, 0.9%, 5.3% and-37.2%, respectively.
The asset structure has been continuously optimized and the cash flow has continued to improve. 3Q23's asset-liability ratio is 54.34%, down 4.33ppt from the beginning of the year. The net cash flow of 3Q23's operating activities is 10.094 billion yuan, with a ratio of + 131.25% to 58.81%.
Trend of development
New projects to increase the scale of production capacity, major shareholders to increase their holdings to show confidence. According to the announcement, the company's Inner Mongolia Huayun Phase III phase 420,000 tons / year electrolytic aluminum (big and small projects, actually increased 170,000 tons / year) and Guangxi Huacheng Phase II phase 2 million tons / year alumina project progressed steadily. We believe that the company's electrolytic aluminum and alumina production capacity will be increased by 2.3% and 9.0% after it is put into production. On October 20, 2023, the company announced plans to increase its holdings by 250-500 million yuan. As of October 26, the company has increased its holdings by 45 million yuan, accounting for 0.04% of the shares.
Domestic stable growth policy has gradually landed, and aluminum prices are expected to continue the upward trend. We believe that the operating capacity of domestic electrolytic aluminum has gradually reached its peak, the dry season in Yunnan is approaching, Yunnan electrolytic aluminum may still be expected to stop production, and the supply end is rigid; while the steady growth policy on the demand side is gradually realized to boost market confidence, in the context of low inventory, we believe that aluminum prices are expected to continue the upward trend, and the company as a global electrolytic aluminum leader is expected to benefit.
Profit forecast and valuation
We keep our 2023Universe earnings forecast unchanged, and the current A share price corresponds to a price-to-earnings ratio of 14.3 times 2024 earnings. The current H-share price corresponds to a price-to-earnings ratio of 8.5 times earnings for 2023 pound in 2024.
A-share maintains a neutral rating with a target price of 7.2 yuan, corresponding to a price-to-earnings ratio of 17.1% in 2023 and 2024, which is 19% higher than the current upside. H shares maintain a neutral rating with a target price of HK $4.9, corresponding to a price-to-earnings ratio of 11.2 / 11.1 in 2023 / 2024, which is 22% upside from the current price / earnings ratio.
Risk
The economy rebounded less than expected, the policy of stabilizing growth was lower than expected, and prices fluctuated sharply.