Shenhuo Co., Ltd. released its 2023 annual report: the company's revenue in 2023 was 37.625 billion yuan, -11.89%; net profit to mother was 5.905 billion yuan, -22.07% YoY; net profit to mother after deducting non-recurring profit and loss was 5.820 billion yuan, -25.16% YoY.
Key points of investment
The decline in profit in 2023 is due to the decline in prices of major products. We are optimistic about incremental coal and aluminum restoration profits in 2024
Volume: The company produced 1,518 million tons of aluminum products in 2023, -7.16% YoY, 7.1696 million tons of coal, +5.25%, 80,900 tons of aluminum foil, -0.74% YoY, 50,300 tons of coke, -11.75% YoY.
Price: In 2023, the average price of A00 aluminum in the Yangtze River Nonferrous Market was 18,702 yuan/ton, -6.43%; the average price of alumina was 3120 yuan/ton, -4.03%; the average price of pre-baked anodes was 5,378 yuan/ton, -24.68%; the average price of poor coal truck boards in Zhengzhou, Henan was 812 yuan/ton, -18.72% year on year.
Profit: The main reason for the decline in the company's profit in 2023 was due to factors such as the year-on-year decline in the prices of the company's main products coal, electrolytic aluminum, and aluminum foil by 284.42 yuan/ton, 945.32 yuan/ton, 4,806.53 yuan/ton, and the subsidiary Yunnan Shenhuo reduced production by 92,700 tons during the reporting period, and the profitability of the company's main products weakened.
The company's coal and aluminum product production is expected to recover in 2024. At present, Yunnan Shenhuo has resumed production in August 2023. The Liangbei coal mine renovation and expansion project (900,000 tons to 2.4 million tons) is expected to reach production in 2024, and the company's coal and aluminum product production is expected to increase this year. In 2024, the company plans to produce 1.5 million tons of aluminum products, 6.9 million tons of raw coal, 535,000 tons of carbon products, 97,500 tons of aluminum foil, 165,000 tons of cold-rolled products, 50,000 tons of coke, and supply (sale) 11.97 billion kilowatts of electricity.
Shenhuo New Materials Phase II's 60,000 ton project is progressing smoothly, and the increase in aluminum products can be expected
Shenhuo New Materials Phase II's 60,000-ton battery foil project is expected to be put into operation in August 2024. As of the 2023 annual report, Shenhuo New Materials has completed the IATF16949 automotive quality management system certification; the second phase of the new energy power battery material project is progressing smoothly. The first rolling mill began commissioning with materials in February 2024, and it is expected that all 8 rolling mills will be put into operation in August 2024.
Focus on the main business and expand green power equity production capacity. In August 2023, the company acquired 14.85% of Yunnan Shenhuo Aluminum Co., Ltd., a total of 14.85% shares held by Henan Asset Merchant Shenhuo Green Development Fund (Limited Partnership) and Shangqiu Xinfa Investment Co., Ltd., and completed the relevant business change registration procedures at the end of the third quarter of 2023. The company's shareholding of Yunnan Shenhuo Aluminum Co., Ltd. increased from 43.40% to 58.25%.
Profit forecasting
The company's main revenue for 2024-2026 is estimated to be 39.95 billion yuan, 417.54 billion yuan and 43.383 billion yuan, respectively, and net profit to mother of 63.51 billion yuan, 68.69 billion yuan, and 7.333 billion yuan, respectively. The PE corresponding to the current stock price is 6.7, 6.2, and 5.8 times, respectively.
Considering that the company has completed the resumption of production in Shenhuo, Yunnan, and that the Liangbei coal mine renovation and expansion project is expected to reach production in 2024, coal and aluminum production is expected to grow, we believe that the company's profit is expected to pick up this year, so it maintains a “buy” investment rating.
Risk warning
1) Risk of limited production of electrolytic aluminum; 2) risk of falling prices for major products such as coal and electrolytic aluminum; 3) the release of the company's coal production capacity falls short of expectations; 4) the release of the company's aluminum foil production capacity falls short of expectations, etc.