occurrences

China Aluminum announced a pre-increase in 2023 results: net profit due to mother is expected to achieve 63-73 billion yuan in 2023, +50% to 74% year over year; net profit to mother after deducting non-recurring profit and loss is 66-7.6 billion yuan, +113% to 145% year-on-year.

Key points of investment

The company strengthened production control and achieved a year-on-year increase in performance despite falling aluminum prices

Looking at the full year of 2023, the prices of electrolytic aluminum and alumina fell slightly year on year. In 2023, the average price of A00 aluminum in the Yangtze River Nonferrous Market was 18,702 yuan/ton, -6.43% year-on-year, and the average price of alumina was 3120 yuan/ton, -4.03% year-on-year.

Although market prices for major products fell slightly, in 2023, the company achieved a year-on-year increase in performance through measures such as strengthening production plans and process control, improving effective capacity utilization, and continuing to deepen all-factor benchmarking, and production and operation continued to improve.

Guinea's Bofa mine is operating normally, and the 2 million ton Huasheng Phase II project is expected to be put into operation in 2025

The Bofa bauxite project was carried out in an orderly manner, and the Guinea oil depot explosion did not affect its normal production and operation. The company has the highest domestic bauxite resources, with about 1.8 billion tons of bauxite resources overseas. Among them, Bofa bauxite is rich in resources, containing 1,758 million tons of resources, 98 million tons of reserves, and a grade of 38.64%. It can produce 13.55 million tons of bauxite per year, and the mining life is greater than 60 years. The Bofa project is being produced in an orderly manner as planned. In the first half of 2023, the company imported more than 6 million tons of bauxite from the project.

After the explosion at the oil depot in Guinea, the company actively developed fuel supply channels, and the local Bofa project was not affected by normal production and operation. Furthermore, its bauxite shipping route is from the Indian Ocean to China via the Cape of Good Hope in Africa, and transportation capacity has not been directly affected by the recent Red Sea incident.

On the incremental side, the company's Guangxi Huasheng Phase II project is expected to be put into operation in 2025, adding 2 million tons of alumina production capacity.

Domestic electrolytic aluminum supply continues to be tight, and the net increase in production capacity in 2024 is tighter than expected

According to Baichuan Yingfu, as of January 25, 2024, China's electrolytic aluminum had a production capacity of 473.49 million tons and started construction of 42.078 million tons. In terms of production cuts, the scale of production cuts in 2024 involved 2.2 million tons, and production has been cut by 200,000 tons so far. In terms of resuming production, the total scale of resumption of production in 2024 was 1,545,000 tons, and production has already resumed at 200,000 tons. In terms of additional production capacity, 2.98 million tons of new production capacity have been built and are due to be put into operation in 2024, and it is estimated that 0.000 tons will be put into operation.

Profit forecasting

It is predicted that the company's main revenue for 2023-2025 will be 2832.77, 2958.65 billion yuan, and 310.160 billion yuan, respectively, and net profit to mother will be 66.59, 79.81, and 8.941 billion yuan, respectively. The PE corresponding to the current stock price is 14.8, 12.4, and 11.0 times, respectively.

Considering changes in raw materials and energy costs of electrolytic aluminum, and the tightening of aluminum supply and demand, which catalyzes an upward shift in aluminum prices, and the company's industrial synergy advantages are obvious, we covered the company for the first time and gave it a “buy” investment rating.

Risk warning

1) Risk of policy production restrictions; 2) risk of falling prices of major products; 3) risk of fluctuations in raw materials and energy prices; 4) risks such as falling short of expectations in the commissioning of new projects.