A pioneer in energy transformation, integrated development of coal, electricity and aluminum. The company is a leading lignite enterprise in Mengdong and Northeast China. It has now formed an integrated coal, electricity and aluminum industrial chain layout. The circular economy has remarkable advantages and is on the fast track of high-quality development. In 2022, the company achieved operating income of 26.79 billion yuan, an increase of 8.6% over the previous year; net profit of the mother was 3,987 billion yuan, an increase of 11.3% over the previous year. In 2023, H1 achieved net profit of 2,583 billion yuan, an increase of 10.8% over the previous year.
Coal business: stable production and marketing and long-term cooperation account for a high share, and steady performance all year round. 1) The company has 5 open pit mines with an approved production capacity of 46 million tons/year and equity production capacity of 45.64 million tons/year. 2) Since 2014, the average annual consumption of coal in Northeast China has remained above 400 million tons. With the withdrawal of backward coal production capacity in Northeast China, the gap in coal demand within the region has further widened. Benefiting from the mismatch between regional coal supply and demand, the company's coal production and sales rate has basically maintained full production and sales in recent years. 3) The company's long-term coal cooperation ratio is as high as 90%, which can effectively calm the impact of fluctuations in coal prices on performance. 4) The production model of open pit mining, combined with the large-scale advantages of single-well production capacity, led the company's coal production costs in the industry, and the gross margin in 2022 was as high as 49.7%.
Electrolytic aluminum business: Self-owned electroforming is low cost, leading the profitability industry. 1) In 2019, the company acquired 51% of Huo Mei Hongjun's shares and entered the field of electrolytic aluminum. It has an electrolytic aluminum production line that has been put into operation for 860,000 tons/year, supporting 1.8 million kilowatts of thermal power and 300,000 kilowatt wind turbines. 2) The output rate of the company's high-quality aluminum ingots is relatively high, downstream customers are stable, and the capacity utilization rate is maintained at 100%. 3) Electrolytic aluminum products are highly homogenous. Enterprise competitiveness is mainly reflected in energy costs, while Huo Mei Hongjun has his own power plant and built his own moat. According to estimates, the actual electricity cost of the company's electrolytic aluminum business in 2022 was only 0.27 yuan, an increase of only 5.1% over the previous year.
Electricity business: Green power construction is accelerating, and core growth will increase in the future. As of the end of June 2023, the company has 1.2 GW of thermal power units and 3.12 GW of new energy units. In order to respond to the national strategy and achieve the “double carbon” goal, the company has continued to increase its strength in the field of new energy since 2020. As of September 29, 2023, the company's installed scale of new energy under construction and planning reached 5.40 GW. It is expected to break through 10 GW during the “14th Five-Year Plan” period, becoming a new growth point for corporate profits, and outstanding growth.
Investment advice: First coverage, give a “buy” rating. Considering the steady profit of coal and electrolytic aluminum, and new energy sources being connected to the grid one after another, the scale of the power business is about to expand, we expect the company's net profit from 2023-2025 to be 42.3, 46.4, and 4.92 billion yuan. Based on the market value at the closing time of November 13, the corresponding PE is 7.1, 6.5, and 6.1 times. Referring to comparable company valuations, coverage for the first time, a “buy” rating.
Risk warning: 1) The prices of coal and aluminum have fallen sharply; 2) macroeconomic growth has fallen short of expectations; and 3) the commencement of new projects has fallen short of expectations.