occurrences

On April 24, the company released its annual report for the year 23 and the quarterly report for '24. It achieved revenue of 7.652 billion yuan, -15.96% year on year, net profit to mother of 306 million yuan, or -49.82% year on year; 1Q24 achieved revenue of 1,864 billion yuan, -10.78% month-on-month, and net profit of 61 million yuan, or -38.66% month-on-month.

reviews

The profitability of major products increased in '23. (1) The average price of non-ferrous magnesium ingots in the Yangtze River was 23,700 yuan/ton, -27.53%; the average price of non-ferrous aluminum in the Yangtze River was -6.21%, the company's product sales volume was -13.93% month-on-month to 363,800 tons. The gross margin of magnesium deep processing products during the same period was +4.38 percentage points to 12.37%, and the gross margin of aluminum deep processing products was +0.05 percentage points to 10.27%. We think the main reason was the gradual upgrading of magnesium and aluminum products in 23 , optimize processes to reduce production costs, and improve profitability. (2) The average price of 4Q23 magnesium ingots was 231,000 yuan/ton, -2.79% month-on-month, the average price of 75% ferrosilicon in Baotou was 7395 yuan/ton, +1.68% month-on-month, the average price of thermal coal was 848 yuan/ton, +10.93% month-on-month, and the average price of Changjiang non-ferrous aluminum was 1.9 million yuan/ton, +0.71% month-on-month. However, the gross profit of 4Q23 was -1.70% month-on-month to 305 million yuan, mainly due to 4Q4 23 Asset impairment losses increased month-on-month 0.27 million yuan to 28 million yuan, and income tax decreased by 19 million yuan to -0.03 billion yuan over the same period last month.

The decline in magnesium prices led to a decline in Q1 results. The average price of 1Q24 magnesium ingots was 21,000 yuan/ton, -8.67% month-on-month, the average price of 75% ferrosilicon in Baotou, -5.33% month-on-month, the average price of thermal coal was 799 yuan/ton, -5.79% month-on-month, and the cost reduction was less than that of magnesium products. Combined with the sales expense ratio +0.29 percentage points to 0.52% month-on-month, and the financial expense ratio was +0.47 percent to 1.52% month-on-month, resulting in Q1 company's net profit of -38.66% month-on-month to 0.61 million yuan, ROE 0.75 percent month-on-month to 1.15%.

Low-altitude economy & magnesium-based hydrogen storage expand the application scenarios of magnesium alloys, and production and sales are expected to continue to expand. The company signed a cooperation agreement with Xiaopeng Flying Auto to become a designated supplier for key components such as instrument panel tube beam assemblies and middle channel left and right bracket assemblies; in '23, the company's magnesium-based hydrogen storage materials have been tested. After customer testing, batch supply will gradually be formed. Low-altitude economy and magnesium hydrogen storage expand application scenarios for magnesium alloy materials. The company expects the Chaohu Yunhai 50,000 ton raw magnesium production expansion project to be put into operation in the second half of '24, and the magnesium production line for the 300,000 ton magnesium alloy and supporting raw magnesium project in Qingyang started in December '23. After the above project is put into operation, it will significantly increase the company's production and sales scale and provide sufficient raw material guarantees for downstream deep processing.

Profit forecasting & investment ratings

The company's revenue for 24-26 is estimated to be 115/128/13.7 billion yuan respectively, with net profit attributable to mother of 393/11.52 billion yuan, EPS of 0.55/1.63/2.17 yuan, respectively, and corresponding PE of 31.57/10.75/8.07 times, respectively. Maintain a “buy” rating.

Risk warning

The construction of the project fell short of expectations, the price of magnesium fluctuated greatly, the risk of market demand fluctuations, and the risk of RMB exchange rate fluctuations.