Net profit to mother in 24Q1 was +31.53% year-on-year. The 24Q1 “buy” rating company achieved revenue of 11.358 billion yuan (yoy +20.28%), and net profit to mother of 1,164 billion yuan (yoy +31.53%). Considering the strong operation of electrolytic aluminum and alumina prices, we expect the company's EPS to be 1.42/1.58/1.68 yuan (previous value 1.20/1.43/1.61 yuan), which is 11.8 times the average value of the company's PE (2024E). Considering the company's hydropower aluminum card position advantage, the company is given a 24-year 13 PE valuation, corresponding to a target price of 18.46 yuan (previous value of 15.60 yuan), maintaining a “buy” rating.

24Q1 raw aluminum production was 636,900 tons, and gross margin decreased year-on-month. According to the company's quarterly report, the company's 24Q1 raw aluminum production was 636,900 tons (yoy +23.3%), mainly due to the reduction in production restrictions in Yunnan compared to 23Q1. The company's 24Q1 gross profit margin was 14.3% (yoy-1.4pct, qoq-3.2pct), of which the average price of 24Q1 aluminum was 19047 yuan/ton (yoy+589 yuan/ton, qoq+81.5 yuan/ton), and the company's cost may have increased. Among them, the average price of alumina in the 24Q1 region was 3393 yuan/ton (yoy+524 yuan/ton, qoq+372 yuan/ton), alumina is the main factor in the cost increase.

In addition, the company's 24Q1 expense ratio was 1.57% (yoy-0.34pct, qoq-1.65pct), and the net sales margin was 11.84% (yoy+0.86pct, qoq-1.64pct).

The first batch of production resumed in Yunnan has basically been completed, and production capacity is expected to be further released

According to SMM, on March 18, Yunnan Province experienced an abundance of electricity due to a decrease in the amount of electricity transmission and better electricity supplementation such as wind and light, and released 800,000 kilowatts of electricity for electrolytic aluminum enterprises in the province to resume production. As of April 25, the first batch of production resumed in Yunnan Province was basically completed, with a scale of 470,000 tons. The remaining production capacity to be resumed is expected to continue as the flood season approaches. The company is the largest electrolytic aluminum company in Yunnan Province. As the incoming water situation improves, production capacity is expected to be further released. The company's target for electrolytic aluminum production in 2024 is 2.7 million tons, an increase of 300,000 tons over 2023, and an increase of 12.5% over the previous year.

The supply and demand pattern for electrolytic aluminum is good, and I am optimistic that aluminum prices will remain high

Since 2024, demand for electrolytic aluminum has performed better than we expected. Among them, industries such as photovoltaics and new energy vehicles have maintained rapid growth, and demand for aluminum has continued to grow. According to Mysteel, aluminum profile production in January-March fell by only 1.2% year on year. Among them, demand for building profiles recovered well in March, mainly due to the gradual resumption of work on construction sites and projects with the support of multiple beneficial government policies. Combined with urban village renovation, demand for doors and windows increased. Therefore, we estimate that the apparent domestic consumption growth rate of electrolytic aluminum reached 10.85% in January-March, and the good consumption performance led to strong aluminum prices. Furthermore, the US manufacturing PMI recorded 50.3 in March, returning above the boom and bust line. The recovery of the manufacturing economy may drive the start of an active inventory replenishment cycle, which supports aluminum prices. We are optimistic that aluminum prices will remain high.

Risk warning: downstream demand falls short of expectations, and raw material prices fluctuate.