Incidents:
The company announced a pre-increase in 2023 results. In 2023, the company expects to achieve net profit of 63-73 billion yuan, an increase of 50%-74% over the previous year; net profit after deduction of 66-7.6 billion yuan, an increase of 113%-145% over the previous year. The reason for the increase in performance is mainly related to the company's measures such as strengthening production plans and process control, improving effective capacity utilization, and continuing to deepen all-factor benchmarking.
Product sales prices declined, and the company strengthened costs and production control to improve performance from the price side: in 2023, the average spot price of domestic alumina was 2,919 yuan/ton, down 0.95% year on year; the average spot price of electrolytic aluminum was 18,711 yuan/ton, down 6.24% year on year; from the cost side: the average domestic anode price in 2023 was 4,685 yuan/ton, down 33.71% year on year, and the average price of thermal coal (5,500 kcal) was 966 yuan/ton, down 23.85% year on year. Against the backdrop of falling product prices, the company's profit growth was mainly due to lower raw material costs and measures such as strengthening production management and improving capacity utilization.
Domestic bauxite leaders are expected to benefit from the increase in alumina prices
The company is the largest bauxite manufacturer in China. By the end of 2022, the company's bauxite self-sufficiency rate was over 60%. Affected by domestic mine safety inspections and uncertainties in the supply of bauxite in Guinea, the domestic spot price of alumina rose from 3,000 yuan/ton on December 15, 2023 to 3,381 yuan/ton on February 21, 2024. Since the price increase mainly occurred in late December 2023, and the impact on the sales price of the company's products in 2023 is limited, we expect the impact of the price increase of alumina on the company's profit to be reflected in 2024.
The proportion of electrolytic aluminum grid electricity is high, and the cost is relatively fixed to improve competitiveness. The company's proportion of electrolytic aluminum grid electricity is high, and self-generated electricity can be satisfied through the subsidiary's own coal production. The core of the electrolytic aluminum industry chain is upstream bauxite resources and midstream energy. The high bauxite self-sufficiency rate and small fluctuations in energy costs have made the company's electrolytic aluminum cost advantage. According to the data disclosed in the company's 2023 rating report, the company's electrolytic aluminum manufacturing costs in 2022 were in the national ranking of 33%-35%, and the cost competitiveness is strong.
Profit forecasting and investment advice
We expect the company's revenue for 2023-2025 to be 2843/2913/299 billion yuan, respectively, -2.29%/2.47%/2.63%; net profit to mother will be 65.08/78.00/9.221 billion yuan, respectively, up 55.25%/19.85%/18.22% year on year; EPS 0.38/0.45/0.54 yuan respectively. We gave the company 15 times PE in 2024, with a target price of 6.82 yuan, maintaining a “buy” rating.
Risk warning: risk of product price fluctuations; overseas political and security risks; risk of exchange rate fluctuations; production falling short of expectations.