Incidents:
The company released its three-quarter report for 2023. In the first three quarters, the company achieved operating income of 18.404 billion yuan, a year-on-year decrease of 17.23%; realized net profit of 5.352 billion yuan, a year-on-year decrease of 0.85%; and realized net profit of 4.930 billion yuan, an increase of 10.76% over the previous year. In the third quarter, the company achieved operating income of 54.342 billion yuan, a year-on-year decrease of 20.85%, a year-on-month decline of 19.83%; realized net profit of 1,936 billion yuan, an increase of 105.35% over the previous year, an increase of 20.71% over the previous year; and realized net profit of 2,046 billion yuan, an increase of 233.80% over the previous year, an increase of 60.52% over the previous year.
The volume and price of electrolytic aluminum and alumina have increased sharply, operating efficiency has improved, and gross margin has improved markedly: ① Volume:
1) Electrolytic aluminum produced 4.93 million tons of raw aluminum (including alloys) in the first three quarters of 2023, -3.78% (or 190,000 tons), and sales of 4.94 million tons, or -3.56% (or 180,000 tons); in the third quarter, primary aluminum production was 1.87 million tons, an increase of 340,000 tons, sales volume 1.88 million tons, and 400,000 tons.
2) Alumina: The first three quarters of 2023 produced 12.46 million tons of metallurgical alumina, -7.35% (or 980,000 tons); fine alumina production was 2.83 million tons, +6.19% (or 160,000 tons); in the third quarter, metallurgical alumina production was 4.23 million tons, a decrease of 20,000 tons, and fine alumina production was 950,000 tons, an increase of 180,000 tons over the previous year.
3) Coal: Production in the first three quarters of 2023 was 9.69 million tons, +19.19% (or 1.56 million tons); production in the third quarter was 3.47 million tons, a decrease of 50,000 tons; ② Price: According to Huashun, the closing price of SHFE aluminum in the third quarter of 2023 was 18650 yuan/ton, up 1.5% from the previous month (or 280 yuan/ton), up 1.6% year on year (or 297 yuan/ton); alumina price: 2960.5 yuan/ton, +17.38 yuan, y-49.73 yuan; pre-baked anode price: 49.73 yuan/5 yuan tonnes , -472.03 yuan month-on-month, -2883.6 yuan; ③ Benefit: According to the company's announcement, the company's gross sales margin and net margin increased significantly. The gross sales margin for the third quarter was 15.77%, an improvement of 5.84pct over the second quarter, and the net sales margin was 6.65%, an improvement of 2.69pct from the second quarter.
As the amount of scarce electrolytic aluminum increased, the reform of state-owned enterprises catalyzed the improvement of operating efficiency, and the increase in shareholders' holdings demonstrated their determination to reform.
√ Due to the production capacity ceiling, the new domestic production capacity of electrolytic aluminum is limited. The company previously announced that in order to revitalize Yunaluminum's restricted index assets, Yunlu Co., Ltd. plans to transfer 100,000 tons of electrolytic aluminum production capacity to the Qinghai branch of China Aluminum Corporation. At the same time, construction of the company's Inner Mongolia Huayun Phase III electrolytic aluminum project began in March this year. The Qinghai and Inner Mongolia regions are expected to contribute to the increase in electrolytic aluminum production capacity in the future.
√ The increase in shareholders' holdings shows determination for reform. We are optimistic about the improvement in the quality of the company's operations in the context of state-owned enterprise reform. In October 2023, the company announced that it plans to increase its A-share holdings of the company through the Shanghai Stock Exchange trading system, with an increase of not less than RMB 250 million and not more than RMB 500 million.
Investment advice:
The company's operating efficiency continued to improve. At the same time, the third quarter benefited from an increase in commodity prices and a significant improvement in gross margin and net margin from falling costs. Looking ahead to the fourth quarter, we expect that financial support policies will continue to advance. The infrastructure and real estate side may exert an upward impetus on aluminum prices, while the supply side will have limited growth due to capacity ceilings. We are optimistic that the aluminum industry's long-term supply and demand are tight, and prices remain high. At the same time, the company's own operating efficiency improvements and volume growth are prominent. The company's 2023-2025 operating income estimates were raised to 2801.09, 2883.48 billion yuan, and 29,0048 billion yuan, and estimated net profit of 72.84, 97.25, and 11.061 billion yuan, corresponding to EPS of 0.42, 0.57, and 0.64 yuan/share, respectively. The current stock price corresponds to PE 14.5, 10.8, and 9.5 times. To maintain the “increased holdings - A” rating, we selected similar companies in the same industry, Tianshan Aluminum and Yunaluminum shares for comparison. As of October 30, 2023, Wind agreed that the average PE for 2023 and 2024 would be 11.1 times and 8.6 times, respectively. Considering that the company still has quantitative growth attributes and improved operating efficiency, we have given 17 times PE for 2023, raising the target price for 6 months to 7.14 yuan/share.
Risk warning: Demand falls short of expectations, product prices fluctuate, production limits exceed expectations, and asset impairment.