23Q1-3 has net profit of 207 million yuan, maintaining “buy” rating companies 23Q1-3 to achieve revenue of 5.563 billion yuan (yoy -21.74%) and net profit of 207 million yuan (yoy -64.17%); of these, 23Q3 achieved revenue of 2,030 billion yuan (yoy -5.27%, qoq +10.42%) and net profit of 86 million yuan (yoy +12.77%, qoq +21.78%). We expect the EPS for 23-25 to be 0.43/0.83/1.62 yuan, and the average PE (2024E) of comparable companies is 19.8X. Considering that the company is backed by central enterprises and has a stable leading position in the magnesium industry, the company was given 29.7 times PE in 24 years, corresponding to the target price of 24.58 yuan, maintaining the “buy” rating.
Magnesium prices have continued to fall since 23, and the company's 23Q1-3 profitability has been under pressure on the company's profitability, mainly because the magnesium price center has continued to decline since '23: according to Wind, as of November 6, '23, the average price of magnesium ingots in '23 was 23,946 yuan/ton, down 29.96% year on year. The company's 23Q1-3 sales gross profit margin was 13.01%, y-5.23pct; net sales profit margin was 4.36%, y-4.54 pct. In addition, the company's period expense ratio increased slightly by 1.11pct to 8.22%, of which the financial expense rate increased by 0.69pct to 1.38%.
Baosteel Metal became the company's controlling shareholder through a fixed increase. Previously, Baosteel Metal had a project cooperation of 23Q3. Baosteel Metal became the company's controlling shareholder by subscribing to the company to issue shares, and its shareholding reached 21.53%. The capital raised through this stock offering will be used to supplement working capital and repay interest-bearing liabilities, which can enhance the company's capital strength, optimize the company's capital structure, and reduce the company's financial risk. The company will actively utilize China's Baowu's strong market competitiveness in the automotive materials market, seize the driving effect of lightweight demand in the automotive industry on the application of magnesium and aluminum alloys, and achieve product restructuring and business transformation and upgrading. Prior to that, the company and Baowu Metal jointly invested in Anhui Baomei Light Alloy Co., Ltd. and participated in the mixed ownership reform of Baomac (Hefei) Technology Co., Ltd., a wholly-owned subsidiary of Baosteel Metal; the former focused on raw magnesium smelting, while the latter focused on aluminum alloy extrusions.
China is the main producer of magnesium in the magnesium industry. Future new demand may come mainly from automobile lightweight construction. According to the company's investor relations activity record table (23-10-11), the global raw magnesium production capacity in '22 was 1.63 million tons, and the output was 1.11 million tons, a decrease of 2.63% over the previous year. According to preliminary statistics from the Magnesium Industry Branch of the China Nonferrous Metals Industry Association, in 2022, China's raw magnesium production capacity was 1.3646 million tons, which was basically stable in recent years. Raw magnesium production was 933,300 tons, down 1.63% year on year; magnesium alloy production was 357,800 tons, down 0.75% year on year; and magnesium powder production was 103,800 tons, up 13.57% year on year. The instrument panel brackets, seat brackets, and on-board electronic structural parts of traditional automobiles and new energy vehicles have begun to use magnesium alloy or magnesium-aluminum alloy; the company 23H1 has also successfully tested two types of oversized NEV structural parts, integrated body castings and battery case covers. We think the weight reduction of cars may be a new increase in future magnesium demand.
Risk warning: The company's endogenous growth was not released as scheduled, and downstream demand fell short of expectations.