China Aluminum released its 2023 annual report: the company's revenue in 2023 was 225.071 billion yuan, -22.65% year on year; net profit to mother was 6.717 billion yuan, +60.23% year over year; net profit to mother after deducting non-recurring profit and loss was 6.614 billion yuan, +111.27% year over year.
Key points of investment
The company strengthened production control to avoid the risk of price fluctuations, and the gross margin of electrolytic aluminum increased
The company has achieved remarkable cost reduction results, effectively resists the risk of market price fluctuations, and still achieves good results. Although falling aluminum prices affected revenue in 2023, the company strengthened production control, improved capacity utilization, and maintained industry-leading product quality, while costs were significantly reduced, so profits continued to grow well.
Volume: The company's fine alumina production increased dramatically. The company produced 16.67 million tons of alumina in 2023, -5.50% year on year, 4.99 million tons of fine alumina, +16.32% year on year, 6.79 million tons of raw aluminum (including alloy), -1.31% year on year, and 13.5 million tons of coal, +21.5% year over year.
Price: Prices of electrolytic aluminum and alumina declined 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.
Benefit: The company's gross margin of the electrolytic aluminum sector increased. In 2023, the gross profit margin of the company's electrolytic aluminum business was 13.20%, +0.87pct year on year, and the gross profit margin of the alumina sector was 10.85%, -6.44pct year on year.
Guangxi Huasheng Phase II 2 million ton alumina project is expected to be put into operation in 2025
The company accelerated the upgrading and adjustment of the industrial structure and actively promoted the Guangxi Huasheng Phase II 2 million tonne alumina project and the Inner Mongolia Huayun 420,000 ton light alloy material project. According to the company's announcement, the company's Guangxi Huasheng Phase II project is expected to be put into operation in 2025, corresponding to an additional 2 million tons of alumina production capacity.
Net increase in domestic electrolytic aluminum production in 2024 is limited
The country is expected to achieve a net increase in electrolytic aluminum production capacity of 550,000 tons in 2024, and the net increase in supply is lower than expected. According to Baichuan Yingfu, as of March 28, 2024, China's electrolytic aluminum production capacity was 42.083 million tons. In terms of production cuts, the scale of China's electrolytic aluminum production reduction in 2024 involved 2.265 million tons. In terms of resuming production, it is expected that production will finally resume a total of 1,565 million tons during the year. In terms of additional production capacity, China's electrolytic aluminum has built a new production capacity of 2.98 million tons and is expected to be put into operation in 2024, and it is expected that 1.25 million tons of new production will eventually be put into operation this year.
Profit forecasting
The company's main revenue for 2024-2026 is estimated to be 2354.19 billion yuan, 2451.14 billion yuan, and 254.919 billion yuan, respectively, and net profit to mother is 78.78, 91.63, and 10.681 billion yuan, respectively. The PE corresponding to the current stock price is 15.7, 13.5, and 11.6 times, respectively.
Considering that the company is a leading enterprise in the domestic aluminum industry and the world's largest manufacturer and supplier of alumina and electrolytic aluminum, the Group has a large cost advantage in domestic sales of alumina, and the price of superimposed electrolytic aluminum is expected to continue to rise, so it maintains 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.