The company predicts a 50%-74% year-on-year increase in net profit to mother in 2023
The company issued an annual performance forecast, achieving net profit of 6.300-7.30 billion yuan, a year-on-year increase of 50.29%-74.15%, and realized deduction of non-net profit of 66.00-7.60 billion yuan, an increase of 112.90%-145.16% over the previous year. Among them, net profit for 4Q23 was 948-1,948 million yuan, turning a year-on-year loss into a profit, -51.06%-+0.59% month-on-month, and realized deduction of non-net profit of 16.70-2,670 billion yuan, turning a year-on-year loss into a profit, -18.36% -+30.52% month-on-month. The company's performance forecast is in line with our expectations.
Key points of interest
Cost control and efficiency have been continuously strengthened, and annual performance has improved markedly. According to the announcement, in 2023, the company achieved a year-on-year increase in performance through measures such as strengthening production planning and process control, improving effective capacity utilization, and continuing to deepen all-factor benchmarking. Looking at industry costs, the average industry price of alumina/thermal coal/pre-baked anode in 2023 was -0.9%/-6.1%/-27.8% year-on-year; judging from the average profit of a ton of aluminum in the industry, although the average profit for a ton of aluminum in 2023 was -6.3%, benefiting from the cost decline, we estimate that the industry's average cash profit per ton of aluminum was +25.6%, and profitability increased markedly.
The new construction project increased the scale of production capacity, and the majority shareholders showed confidence by increasing their holdings. According to the announcement, the company's Inner Mongolia Huayun Phase III electrolytic aluminum (high pressure and small pressure project, actually adding 170,000 tons/year) and the Guangxi Huasheng Phase II 2 million tons/year alumina project are progressing steadily. We believe that the production capacity of the company's electrolytic aluminum and alumina will increase by 2.3% and 9.0% after commissioning. The company announced plans to increase its holdings on October 20, 2023. The controlling shareholders plan to increase their holdings by 250-50 million yuan within 6 months from that date. As of November 6, the controlling shareholders have increased their holdings by 136 million yuan, accounting for 0.13% of the company's total issued share capital.
The strengthening of market value management of central state-owned enterprises is expected to improve the release of corporate performance and enhance the valuation center. In 2023, the State Assets Administration Commission established a “one profit and five rate” target management system for the assessment of central enterprises. On January 24, 2024, the State Assets Administration Commission further stated that market value management would be included in the performance assessment. We believe that this adjustment is expected to implement improvements in the operating quality of central state-owned enterprises under the “one profit and five rate” framework to the level of capital market performance, open up a path of improving fundamentals to increase the market value of enterprises, and enhance the company's performance and valuation center.
The pattern of tight global supply and demand for electrolytic aluminum is expected to continue, and aluminum prices are expected to continue the upward trend. We believe that the global supply of raw aluminum is slowing down systematically, and the supply side is expected to continue to be tight; against the backdrop of the gradual recovery of the global economy and rising emerging demand, we expect global aluminum supply and demand to gradually tighten in 2023-2025, aluminum prices are expected to gradually enter an upward channel, and the company is expected to benefit as a global leader in electrolytic aluminum.
Profit forecasting and valuation
We remain unchanged in our 2023-2025 earnings forecast. The current A share price corresponds to the 2024/2025 13.5/13.5 price-earnings ratio. The current H share price corresponds to 2024/2025 8.0/7.8 times the price-earnings ratio.
A-shares maintain a neutral rating and maintain a target price of 7.2 yuan, corresponding to a price-earnings ratio of 17.0/17.0 times in 2024/2025, with 26% upside compared to the present. H Shares maintained a neutral rating and maintained a target price of HK$4.9, corresponding to a price-earnings ratio of 11.5/11.5 times in 2024/2025, with 26% upside compared to the present.
risks
The economic recovery fell short of expectations, the steady growth policy fell short of expectations, and prices fluctuated sharply.