Event: The company publishes its 2023 annual report. The company achieved annual revenue of 28.97 billion yuan, -12.22% year over year; realized net profit of 2.21 billion yuan, -16.80% year over year; and realized net profit without deduction of 1.88 billion yuan, or -25.81% year over year. The company achieved non-recurring profit and loss of $320 million in 2023 ($110 million in 2022), and the increase was mainly due to government subsidies. The gross margin of the company's annual sales of self-produced aluminum ingots was 20.78%, down 2.16 percentage points from the previous year. The core reason was the decline in aluminum prices, while the raw material side came from higher domestic and foreign bauxite supply prices, and production costs increased. The company achieved revenue of 6.63 billion yuan in a single quarter of 2023Q4, -19.90% year-on-month, and -12.1% month-on-month; realized net profit to mother of 570 million yuan, +130.08% year-on-year, and -8.10% month-on-month.
A cash dividend of 694 million yuan is planned for 2023, with a dividend payment rate of 31.5%.
In 2023, the price of electrolytic aluminum showed an upward trend, and the production of the company's main products increased. In terms of price, the average aluminum price in the Yangtze River Nonferrous Market in China was 18,700 yuan/ton in 2023. It continued to rise during the year, but fell 6.2% year on year under a high base. At the same time, on the raw materials side, the company did not sell anode carbon blocks in 2023. The anodes produced were all for personal use, while the price of raw materials (petroleum coke, coal asphalt, etc.) of anode carbon blocks declined, and the cost of pre-baked anodes decreased; production costs of alumina increased 1.6% year-on-year due to rising domestic and foreign bauxite supply prices. Taken together, the gross margin of the company's self-produced aluminum ingots was 20.78%, down 2.16 percentage points from the previous year. In terms of production, the output of the company's main products has increased. Among them, self-produced aluminum ingot production was 1,165,500 tons, up 0.64% year on year, capacity utilization rate 97.1%; high purity aluminum output was 42,800 tons, up 3.38% year on year, capacity utilization rate 71.3%; alumina production was 2.119 million tons, up 37.57% year on year, capacity utilization rate 84.8%; the subsidiary Jiangyin Xinren Aluminum converted aluminum products. As of 2023, the battery aluminum foil technical improvement project with an annual output of 20,000 tons has been completed.
The aluminum foil business is progressing steadily, and billets are about to be produced on a large scale. The aluminum foil blank production line is planned to have a production capacity of 300,000 tons. As of the 2023 annual report, production and commissioning of the first phase of 150,000 tons of main equipment has been completed, and large-scale production is about to begin; the aluminum foil deep processing production line is located in Jiangyin, adjacent to the Yangtze River Delta lithium battery industry cluster. The technical improvement project has an annual production capacity of 20,000 tons of equipment and has entered the trial production stage; the main equipment of the first phase is being installed and commissioned. The products are mainly aluminum foil for power batteries, aluminum foil for energy storage batteries, and aluminum foil for food. In addition, aluminum foil has completed test orders for more than 40 customers and certification for more than 10 customers, and will enter a phase of climbing production capacity in 2024.
Overseas bauxite resources are deployed, and alumina projects have a cost advantage after implementation. ① The company completed an equity acquisition of a local mining company in Guinea and obtained exclusive purchasing rights for its bauxite products. The project has a production and transportation capacity of about 6 million tons/year of bauxite, which can be transported and loaded to China using existing logistics channels. According to the 2023 annual report, the project has entered the production and mining stage and is about to be shipped domestically, which can meet the company's raw material needs for bauxite and greatly reduce the cost of bauxite raw materials. ② The company obtained three bauxite mining rights in Indonesia, and relied on the bauxite resource plan to invest 1,556 billion US dollars to build a 2 million ton alumina production line in Indonesia, one phase of which is 1 million tons. It is currently undergoing EIA and land acquisition.
Profit forecast. The company integrates upstream and downstream from bauxite and alumina to electrolytic aluminum, high-purity aluminum, and battery aluminum foil, and is equipped with its own power plant and its own pre-baked anodes to form a complete aluminum industry chain layout, so that the company's electrolytic aluminum products maintain strong competitiveness in terms of upstream self-supply of electricity, bauxite resource reserves, aluminum oxide and anode carbon supply guarantees and cost advantages. We expect the company's net profit to be 32.1/35.5/3.70 billion yuan in 2024 to 2026, with year-on-year growth rates of 45.6%, 10.6%, and 4.3%; as of April 12, 2024, the PE corresponding to the closing price is 10.07x/9.10x/8.73x, maintaining a “buy” rating.
Risk warning: Metal prices fall short of expectations due to economic downturn; construction progress of high-purity aluminum and battery aluminum foil projects falls short of expectations; demand falls short of expectations due to low downstream operating rates