2023 results are in line with our expectations
The company announced 2023 results: operating income of 28.844 billion yuan, -17.47% year on year; net profit to mother of 3.474 billion yuan, -1.18% year on year; deducted non-net profit of 2,715 billion yuan, -29.03% year on year. 4Q23 revenue was 7.154 billion yuan, -15.07% YoY, -0.48% month-on-month; net profit to mother was 1,332 billion yuan, +99.76% YoY, +60.70%. The 2023 results were in line with our expectations.
The volume and price of aluminum processing products have both fallen, and the transfer of electrolytic aluminum indicators has greatly increased asset disposal returns. According to the announcement, due to weak overseas demand in 2023, the company's sales volume of cold-rolled sheet/aluminum profile/aluminum foil products was -15.30%/-2.21%/-9.64%, aluminum price was -6.20% YoY, and aluminum processing revenue accounted for 79.42%, -7.2ppt year on year.
In 2023, the company transferred a total of 336,000 tons of electrolytic aluminum production capacity targets, and obtained asset disposal revenue of 755 million yuan, accounting for 21.73% of the current net profit to mother.
Development trends
High-end products are expected to continue to be released, and the share of business will continue to increase. The company continues to focus on developing high-value-added products represented by automobile boards, aviation boards, etc. In 2023, high-end products accounted for 14% of sales, an increase of about 1ppt over the previous year, and the gross profit of high-end products accounted for 30%, an increase of about 9ppt over the previous year. Looking forward to the future, the first is that aluminum automotive sheet production capacity is expected to expand and release at an accelerated pace. The company expects to double production capacity to 400,000 tons in 2024. According to the announcement, demand for aluminum automobile panels is growing rapidly and technical barriers are high. As the first batch supplier of passenger car interior and exterior panels in China, Nanshan Aluminum is currently producing 200,000 tons/year and building 200,000 tons/year production capacity. The company plans to put the new construction project into operation by the end of 2024. Second, the global aviation industry is recovering, and mass production of large domestic aircraft has helped the demand for aviation aluminum rise. According to the announcement, the company is the main supplier of the demonstration platform for the localization of raw materials for large domestic aircraft. With the recovery of the overseas aviation industry and the acceleration of mass production of large aircraft, we expect the company's 50,000 ton aviation board production capacity to continue to increase in the future, and the profit share of the company's high-end products will further increase.
Indonesia's alumina production line has reached full production, further promoting the integrated layout of the industrial chain. According to the announcement, in 2023, the company fully achieved production of 2 million tons/year of alumina in Indonesia. At the same time, the company announced the expansion of 250,000 tons/year of electrolytic aluminum production capacity downstream. The company plans to complete the project in July 2026.
Implement shareholder return plans to demonstrate confidence in development. The company introduced a shareholder return plan. It plans to use no less than RMB 300 million of its own capital to repurchase shares and cancel them every year from 2024-2026. At the same time, it also plans that the 2023 dividend (excluding repurchases) ratio will not be less than 40% of the net profit returned to mother for the year.
Profit forecasting and valuation
We will keep our net profit unchanged in 2024 and increase our net profit in 2025 by 14% to $3,986 billion, taking into account the pace of revenue recovery from subsequent asset disposal. The current share price corresponds to 2024/2025 9.2/9.2x P/E. We maintain our outperforming industry rating and maintain a target price of 4.19 yuan, corresponding to 2024/2025 12.3/12.3xP/E, with 34.3% upside compared to the current stock price.
risks
Aluminum prices fluctuated greatly; project commissioning fell short of expectations; downstream demand recovery fell short of expectations.