Incident: The company disclosed the annual report for 2023 and the first quarter report for 2024. The results for the year 23 were under pressure, and the results for the first quarter of '24 improved year over year. In 2023, the company's revenue was 7.651 billion yuan, -15.96%; net profit to mother was 306 million yuan, or -49.82% year-on-year; net profit after deducting non-return to mother was 303 million yuan, or -47.15% year-on-year. The company's revenue for the first quarter of 2024 was 1,863 billion yuan, +10.03%; net profit to mother was 60.72 million yuan, +19.94% year over year; net profit after deducting non-return to mother was 60.49 million yuan, +32.73% year over year.

Global magnesium supply and demand were weak in 2023, and magnesium prices fell sharply. In 2023, global raw magnesium production capacity was 1.63 million tons, and production was 1 million tons, down 9.9% year on year. Global magnesium consumption in 2023 was about 1.05 million tons, down 8.7% year on year, showing a significant industry pattern where both supply and demand were weak. China's magnesium ingots in 2023 (1 #）平均价格为23699 .21 yuan/ton, -27.23% YoY. We believe that the sharp drop in magnesium prices is the main reason for the sharp year-on-year decline in the company's 2023 performance.

Magnesium demand is in a wide range of fields. The company continues to develop demand in various fields, and future demand for magnesium can be expected. Looking at the main demand areas for magnesium: (1) Magnesium automobile die-casting parts: Medium and large magnesium alloy parts used in automobiles include instrument panel holders, seat holders, central control brackets, display stands, etc. In June 2023, the company's magnesium products division led joint development with Chongqing Merisin Technology Co., Ltd., Chongqing University National Magnesium Center, etc., and successfully tested magnesium alloy oversized automobile die-cast structural parts, which effectively reduced the weight by 32% compared to aluminum substrates. In March 2024, the company's subsidiary Chongqing Boao Magnesium and Aluminum Metal Manufacturing Co., Ltd. signed a development agreement with the automobile manufacturer for oversized magnesium alloy integrated die castings. The company will jointly develop oversized magnesium alloy integrated die castings with this customer. (2) Magnesium construction template: Magnesium formwork is lightweight and has good die-casting performance. As the amortization of magnesium die-casting molds decreases and die-casting costs decrease, there is still room for cost reduction. In 2023, the company further improved the surface treatment process for magnesium alloy building templates, and used magnesium water to directly supply die-cast magnesium alloy construction templates, significantly reducing the production and post-processing costs of magnesium alloy building templates. (3) Low-altitude economy: The company signed a cooperation agreement with Xiaopeng Flying Motor to become a designated supplier for key components such as instrument panel tube beam assemblies and middle channel left and right lower bracket assemblies. (4) Magnesium hydrogen storage:

In 2023, the company's magnesium-based hydrogen storage materials have been tested and will gradually be supplied in batches after customer testing.

Profit forecast: As the company's various projects are completed and products continue to be introduced, the company's 24-26 revenue is expected to be 91.26/124.14/16.394 billion yuan, respectively, and net profit to mother is 4.17/7.07/959 million yuan, corresponding to PE 30.64/18.06/13.31 times. The company is expected to maintain the “buy” rating through industrial chain integration.

Risk warning: magnesium price drop exceeds expectations; magnesium demand growth falls short of expectations; company capacity investment falls short of expectations