Incident: The company released its 2023 annual report. In 2023, the company achieved operating income of 28.975 billion yuan, a year-on-year decrease of 12.2%; realized net profit attributable to mother of 2,205 billion yuan, a year-on-year decrease of 16.8%; realized net profit deducted from mother of 1,883 billion yuan, a year-on-year decrease of 25.8%. In the fourth quarter, the company achieved operating income of 6.631 billion yuan, a year-on-year decrease of 19.9% and a decrease of 12.1%; realized net profit of 568 million yuan, an increase of 130.08% year-on-year and a decrease of 8.1% month-on-month; and realized net profit withheld from non-return mother of 554 million yuan, an increase of 164.9% year-on-year and 7.5% month-on-month.
Accumulated inventories of anode carbon and high-purity aluminum sheets generate unrealized gross sales profits, and the profits of companies with rising aluminum prices are expected to increase.
Performance split: According to the company's announcement, some profits in the anode carbon and high-purity aluminum sectors have not yet been sold. Among them, the high-purity aluminum sector has not achieved sales gross profit of about 180 million yuan.
Volume: According to the company's announcement, during the reporting period, the company produced 1.116 million tons of electrolytic aluminum (+0.69 million tons), 2.119 million tons of alumina (+578,700 tons), pre-baked anode output of 599,000 tons (+86,500 tons), high-purity aluminum production was 43,000 tons (+0.16 million tons year over year), and aluminum foil production was 10,000 tons.
The company's main production and operation goals for the year 2024 are: 1.16 million tons of raw aluminum, 13 billion kilowatts of power, 2.35 million tons of alumina, 550,000 tons of pre-baked anode, 3 million tons of bauxite, 25,000 tons of high-purity aluminum, and 100,000 tons of aluminum foil and aluminum foil billets.
Price: According to Tonghuashun, the closing price of SHFE aluminum in 2023 was 18624.9 yuan/ton, -6.5% (or -1289 yuan/ton), the average price of alumina on the cost side was 2900.6 yuan/ton, -1.5% (or -42.9 yuan/ton), and the average price of pre-baked anodes was 4762.9 yuan/ton, year-on-year. The average price of bauxite was 449.22 yuan/ton, +32 yuan/ton, and the average price of caustic soda was 2688.57 yuan/ton, -850.17 yuan/ton year on year.
In 2023, the average price of Q4SHFE aluminum was 18,981 yuan/ton, +198.5 yuan/ton, yoy +225.7 yuan/ton; the average price of alumina was 2,958 yuan/ton, yoy +99.8 yuan/ton; the average price of pre-baked anodes was 4100.5 yuan/ton, yoy -2993.5 yuan/ton, month-on-month; the average price of caustic soda was 260.53 yuan/ton, year-on-year +38.87 yuan/ton, and -3.25 yuan/ton. 52.88 yuan/ton , year-on-year -980.17 yuan/ton, month-on-month +130.97 yuan/ton.
Considering that one ton of electrolytic aluminum requires about 0.47 tons of pre-baked anode and 1.9 tons of alumina, the impact of the month-on-month decline in raw material costs in 2023 was an increase of 842.43 yuan on the gross profit per ton, and the month-on-month increase in raw material costs in Q4 in 2023 had a decrease of 124.3 yuan on the gross profit per ton.
Considering that one ton of alumina requires 2.7 tons of bauxite and 0.14 tons of caustic soda, the impact of fluctuations on the raw material cost side in 2023 was a year-on-year increase of 28.87 yuan/ton, and the impact of fluctuations on the raw material cost side in Q4 2023 on the gross profit per ton decreased by 8.46 yuan/ton month-on-month.
Operating cash flow is steady, with net operating cash flow of $3,916 million in 2023, an increase of $759 million over 2022.
The strategic plan is clear: focusing on resource security, the target self-sufficiency rate for bauxite has reached 100%, while actively studying the indicators for unbuilt electrolytic aluminum:
Indonesia: The company plans to build an integrated aluminum industrial chain in Indonesia and build a large-scale integrated aluminum industrial park with bauxite, alumina, electrolytic aluminum, deep processing and supporting industrial chains. The company has three mining rights in Indonesia covering a total area of about 30,000 hectares, with a total exploration area of 259 million hectares. In addition, the company plans to invest 1,556 billion US dollars to plan and build a 2 million ton alumina production line in Indonesia. Currently, it has reported the EIA approval procedure to the relevant local authorities, and the project has been included in Indonesia's national strategic project list. The project has completed the research report and entered the design phase.
Guinea: The company completed the share acquisition of a local mining company in Guinea and obtained exclusive rights to purchase mineral products. In Guinea, the company directly locked in the supply and procurement costs of bauxite resources. The 2024 project has entered large-scale mining and is about to be shipped back to China. The project plans to produce 5 to 6 million tons of bauxite per year. At the same time, the exploration and conversion of Guangxi's own bauxite is also gradually progressing. With the gradual implementation of the above projects, the guarantee of the company's upstream resources will reach 100% in the future.
According to the company's announcement, the company has a total of 1.4 million tons of compliant electrolytic aluminum, 1.2 million tons have already been built, and the 200,000 ton target has not been implemented. The company will comprehensively plan the implementation plan for unbuilt production capacity based on various factors such as energy consumption, electricity economy, and capital expenditure in the region.
There is still uncertainty about the resumption of electrolytic aluminum production. Pessimistic expectations for demand-side real estate completion have bottomed out, PMI continues to be in an expansion cycle, aluminum prices are expected to remain high and continue to strengthen, and the company's performance is expected to benefit. According to SMM, up to now, the total production capacity of open tanks in Yunnan is about 200,000 tons. SMM expects the first batch to resume production in Yunnan in mid-April. By the end of April, domestic electrolytic aluminum operating capacity will increase by about 250,000 tons month-on-month to 42.35 million tons, and there is uncertainty about the remaining resumption of production.
According to the demand-side SMM survey, the domestic aluminum processing PMI was still in the expansion range in April, reaching 56.2%, and -20% compared with completion in January to January, fully releasing pessimism. It is expected that under the slow growth rate of automobiles, home appliances, packaging, etc., electrolytic aluminum is expected to maintain a tight balance throughout the year, and aluminum prices will rise and fall easily.
Investment advice: We expect revenue for 2024-2026 to be 365.80, 375.63, and 38.205 billion yuan, respectively, and estimated net profit of 26.90 billion yuan, 30.67 billion yuan, and 3.194 billion yuan, corresponding EPS is 0.58, 0.66, and 0.69 yuan/share, respectively. Currently, the corresponding PE price is 12.0, 10.5, and 10.1 times. Maintaining a “buy-A” rating, the 6-month target price remained at 9.75 yuan/share.
Risk warning: aluminum prices fluctuate greatly, project progress falls short of expectations, terminal demand falls short of expectations, etc.