Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 9.29 billion yuan, +8.73% year-on-year, and net profit of 90 million yuan to mother, +35.06% year-on-year. Looking at a single quarter, 2023Q4 achieved operating income of 2.60 billion yuan, +16.98% YoY, +2.84% month-on-month, net profit of 240 million yuan, +58.11% YoY, and -5.7% month-on-month; 2024Q1 achieved revenue of 2.36 billion yuan, +18.28% YoY, -9.05% month-on-month, net profit of 250 million yuan, +7.5% YoY.

In 2023, the company's net profit to mother increased by 233 million yuan year-on-year. The main reason is that the increase in the market share of new energy products among downstream end customers has the dual effect of increasing demand for aluminum and effectively controlling product costs. 2024Q1's revenue was 2.362 billion yuan, +18.28% year on year, and net profit to mother was 255 million yuan, +49.54% year over year, mainly due to increased gross profit growth driven by sales growth (+42 million yuan year over year) and other revenue (+38 million yuan year over year). 1) Volume: In 2023, the company's main business aluminum sheet and foil production increased by 50,300 tons to 387,600 tons, +14.9% year-on-year. 2) Price: The company uses the “aluminum ingot price+processing fee” pricing model. Affected by changes in aluminum prices and the relative overcapacity of the aluminum strip project, the price per ton of the company's products in 2023 was about 23,700 yuan, -6.75% year over year. The average processing cost was about 7199 yuan/ton, -8% compared to the same period last year. 3) Cost: Due to the fall in aluminum prices in 2023, the increase in waste utilization, the reduction in fixed cost per unit of production, and internal management, etc., the company's cost per ton of products in 2023 was about 19,900 yuan, -6.75% year over year, and manufacturing cost was about 3,439 yuan, or -20.27% year over year. 4) Profit: The company achieved a gross profit of 3,760 yuan per ton of aluminum sheet and foil in 2023, +7.08% year over year, and the overall aluminum processing sector achieved a gross profit margin of 15.84%, +2.04pct year on year.

Core highlights: Composite barriers are high, processing costs and yield raise profit levels, deeply bind leading customers, and steadily expand production capacity. (1) Industry barriers: High investment barriers, process barriers and supply chain barriers in composite materials factory construction have many restrictions such as large investment scale, complex process difficulties, and long product certification cycles, which jointly promote the rigidity of processing costs. (2) Yield advantage: The company introduced advanced equipment in the core processing process. Currently, the production yield has reached 73%, which is far higher than the industry average, and is expected to increase by 1 to 2 percentage points in the future. (3) Customer advantages: In the field of heat exchange, customers include world-renowned auto parts groups such as Nippon Denso Co., Ltd., German Mahle Group, and mainstream thermal management manufacturers in the new energy field such as Sanhua, Yinlun, and Nabaichuan; in the field of NEV power batteries, the company's customers include well-known companies such as Kodali, a leading manufacturer of precision lithium battery structural parts and automotive structural components, and Shanghai Zijiang, a well-known domestic power aluminum-plastic film supplier. (4) Production capacity layout:

The company currently has two major production bases in Chongqing and Shanghai, with an annual production capacity of 350,000 tons, and production capacity bottlenecks are mostly concentrated in the front-end hot rolling process. Production capacity can be released by purchasing semi-finished aluminum ingots, etc. Furthermore, the company's Chongqing Phase II project with an annual output of 150,000 tons is progressing steadily, and is expected to be completed and put into operation in 2025, and production capacity expansion is guaranteed.

Investment advice: With the gradual increase in the market share of the company's downstream customers and the steady expansion of the combined production capacity layout, we expect the company's net profit to be 11.45, 13.95, and 1,612 billion yuan in 2024-2026. The PE corresponding to the current price is 17/14/12X, respectively, maintaining the “recommended” rating.

Risk warning: Project progress falls short of expectations, new energy industry growth falls short of expectations, processing costs, etc.