3Q23 results in line with our expectationsAluminum Corporation of China Limited announced that in 1-3Q23, revenue dropped 17.23% YoY to Rmb188.4bn; net profit attributable to shareholders fell 0.85% YoY to Rmb5.35bn; and recurring net profit attributable to shareholders rose 10.76% YoY to Rmb4.93bn. In 3Q23, revenue declined 20.85% YoY to Rmb54.34bn (down 19.83% QoQ); and net profit attributable to shareholders increased 105.35% YoY to Rmb1.94bn (up 20.70% QoQ). The 3Q23 results were in line with our expectations. Earnings increased YoY and QoQ in 3Q23, as volume and profit of the primary aluminum business both rose.
Both volume and profit of primary aluminum business rise; earnings notably improve. In 3Q23, the output of metallurgical alumina at the company fell 3.64% YoY (down 0.47% QoQ) to 4.23mnt. Output of fine alumina rose 7.95% YoY (up 23.38% QoQ) to 0.95mnt. Output of aluminum fell 0.53% YoY (up 22.22% QoQ) to 1.87mnt. Coal output increased 35.55% YoY (down 1.42% QoQ) to 3.47mnt.
Earnings at the company notably improved, as volume and profit of the primary aluminum business both rose. GM increased 8.08ppt YoY to 15.77% (up 5.84ppt QoQ) in 3Q23. The production volume of aluminum fell 0.53% YoY (up 22.22% QoQ), as the firm's factories in Yunnan province restarted production. Changjiang aluminum ingot prices rose 2.4% YoY (1.7% QoQ). Prices of alumina, thermal coal, and prebaked anodes dropped 1.8%, 31.5%, and 37.2% YoY (up 0.9%, down 5.3%, and down 9.2% QoQ).
Asset structure and cash flows continue to improve. The firm's asset- liability ratio came in at 54.34% in 3Q23 (down 4.33ppt from early 2023). Its operating net cash flow stood at Rmb10.09bn in 3Q23 (up 131.25% YoY, and 58.81% QoQ).
Trends to watch
Production capacity increases thanks to new projects; large shareholder buying additional shares shows confidence in the firm. The firm's Huayun Phase III 0.42mnt/yr aluminum project (actual incremental capacity: 0.17mnt/yr) in the Inner Mongolia and the Huasheng Phase II 2mnt/yr alumina project are proceeding smoothly, according to corporate filings. In our view, the two projects will boost the firm's production capacity of aluminum and alumina 2.3% and 9.0% after starting production. In October, the firm announced that controlling shareholder plans to purchase an additional Rmb250-500mn A-shares. As of October 26, the shareholder had purchased an additional Rmb45mn A-shares, representing 0.04% of total equity.
Aluminum prices to continue increasing amid implementation of pro- growth policies in China. We foresee tight supply in the aluminum industry, as: 1) the production capacity of the domestic aluminum industry is reaching the highest possible level; and 2) aluminum factories in Yunnan will likely halt production during the upcoming dry season (November to May of the following year). On the demand side, we think the implementation of pro-growth policies will boost market confidence. Given the existing low inventories, we think aluminum prices may continue to increase. The firm will benefit from higher aluminum prices, in our view, due to its leading position in the global aluminum industry.
Financials and valuation
We keep our 2023 and 2024 earnings forecasts unchanged. A-shares are trading at 14.3x 2023e and 14.2x 2024e P/E. H-shares are trading at 8.5x 2023e and 8.2x 2024e P/E. We maintain NEUTRAL and our target price of Rmb7.2 for A-shares. Our TP implies 17.1x 2023e and 17.0x 2024e P/E, offering 19% upside. We maintain a NEUTRAL rating and a target price of HK$4.9 for H-shares. H-shares are trading at 11.2x 2023e and 11.1x 2024e P/E, offering 22% upside.
Risks
Disappointing economic recovery and/or pro-growth policies; sharp price fluctuations.