Incident: The company announced a pre-increase in 2023 results. The company expects to achieve net profit attributable to shareholders of listed companies of RMB 6.3 billion to RMB 7.3 billion in 2023, an increase of 50% to 74% over the previous year. The company expects net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss in 2023 to be RMB 6.6 billion to RMB 7.6 billion, an increase of 113% to 145% over the previous year.

Alumina prices have risen, and the company's performance has benefited from the integration of the aluminum industry chain: Volume: We expect the company's alumina production to be 16.69 million tons in 2023 (a year-on-year decrease of 950,000 tons); raw aluminum production will be 6.81 million tons (a year-on-year decrease of 70,000 tons). The company's Q4 alumina production was 4.23 million tons (down 3 tons year on year, the same month on month); Q4 raw aluminum production was 1.88 million tons (down 12 tons year on year). The company's alumina production changed greatly from year to year. We expect the company Shanxi New Materials to reduce production capacity by 1 million tons/year since the end of 2022, which will affect production volume. Price: In 2023, the average price of Changjiang aluminum was 18699.63 yuan/ton (-6.2% YoY); Q4 Changjiang aluminum's average price was 18965.5 yuan/ton (YoY +1.1%, month-on-month +0.7%). In 2023, the average price of alumina was 3119 yuan/ton (-4% YoY); Q4, the average price of alumina was 3192.3 yuan/ton (+4.4% YoY, +4% YoY). Raw materials: In 2023, the average price of hydropower in Yunnan was 0.403 yuan/kwh, which was basically the same; in Q4, the average price of hydropower in Yunnan was 0.412 yuan/kwh (+0.09 yuan/kwh). In 2023, the average price of bauxite was 433.7 yuan/ton (+9.2% YoY); the average price of Q4 bauxite was 454.9 yuan/ton (+8% YoY, +2.7% YoY). Cost: We expect the company's alumina Q4 without tax weighted cost of 2,239 yuan/ton, +13 yuan/ton compared to the previous month. The weighted cost of the company's electrolytic aluminum Q4 without tax increased by 589 yuan/ton to 1,3088 yuan/ton. Benefits: Although the company's Q4 electrolytic aluminum sector is affected by electricity prices and alumina costs, the cost growth rate is faster than the price of aluminum, and the profit per ton of electrolytic aluminum has declined. In the alumina sector, the price of alumina and bauxite rose, which led to an increase in the sector's performance. Although the price of raw materials has risen, the company's profitability is stable, highlighting the company's industrial chain integration advantages and deepening the company's management results.

Implementation of key projects has been accelerated, and the advantages of industrial chain integration have gradually become apparent: ① Yunlu's stock agreement transfers its 100,000 tons/year electrolytic aluminum idle production capacity index to the company's subsidiary Qinghai branch; construction of the Inner Mongolia Huayun Phase III 420,000 ton electrolytic aluminum project has begun; and the technical reform of Huaren's new materials electrolyzer is nearing completion. We expect the company's electrolytic aluminum production capacity to increase by 620,000 tons/year until all production capacity is put into production. With little increase in production capacity in the industry, the company's electrolytic aluminum sector will still benefit from increased production capacity.

② The company continues to accelerate the acquisition of domestic and foreign resources, adding 21 million tons of domestic bauxite resources in the first half of the year. In addition, the Guangxi Huasheng Phase II 2 million-ton alumina project is progressing smoothly, the Yinxing Energy Ningdong 250MW photovoltaic project has been approved, and construction of 5 distributed photovoltaic power generation projects, including China Alcoa Shandong and Shanxi Zhongrun, has begun construction. We believe that once all of the above projects are put into operation, the integrated advantages of the company's industrial chain will continue to show, and the proportion of electrolytic aluminum green electricity is expected to increase further.

Profit forecast and investment rating: We expect the diluted earnings per share in 2023-2025 to be 0.40 yuan, 0.48 yuan, and 0.65 yuan, respectively, and the PE corresponding to the current stock price is 14.3x, 11.9x, and 8.9x, respectively.

Considering that the company's industrial chain integration advantages continue to be highlighted, the production capacity of electrolytic aluminum is still increasing, and the company's profit still has upward momentum, maintaining the company's “buy” rating.

Risk factors: Demand for electrolytic aluminum falls short of expectations, and production capacity of electrolytic aluminum production in Yunnan is limited.