Operating performance improved month-on-month, and net profit to mother rose markedly
24Q1 achieved operating income of 6.825 billion yuan, -1.71% YoY, +2.92% month-on-month; realized net profit to mother of 720 million yuan, +43.55% YoY and +26.72% month-on-month. Performance improved markedly from month to month.
The advantages of industrial chain integration have been shown. Reduced operating costs have boosted profits. The company has production links in the entire industry chain from bauxite to aluminum deep processing, and the comprehensive advantage of integration is obvious. The company's electricity and carbon costs are lower than the industry average. Downstream aluminum foil and high-purity aluminum are produced using its own electrolytic aluminum products. Overall, the company's products have a strong cost advantage. The total operating cost of the 24Q1 company was 5.985 billion yuan, -8.46% year-on-year and -1.60% month-on-month. While operating income was basically stable, cost reduction boosted profit levels.
Electrolytic aluminum contributed to the main profit growth, and production and sales of other products are expected to increase: 1) Electrolytic aluminum: Tianyu Limited has 1.2 million tons of electrolytic aluminum production capacity. In addition, the company's anode production capacity can meet all the anode carbon requirements of the existing electrolytic aluminum production capacity. In recent years, the company's production of electrolytic aluminum has been stable, producing 1.116 million tons of electrolytic aluminum in '23 and planning to produce 1.16 million tons in '24.
Q1 The total average price of domestic electrolytic aluminum was 19,000 yuan/ton, +3.23% year over month, +0.39% month on month, and the average price of pre-baked anodes in northwest China was 4,513 yuan/ton, -30.89% year over month, and -3.22% month on month. We believe that under the integrated layout of the industrial chain, the year-on-year increase in the price of electrolytic aluminum and the decline in anode prices have become the main contributors to the year-on-year increase in net profit to the mother. 2) High-purity aluminum: The company has built a production capacity of 60,000 tons of high-purity aluminum in the Shihezi Economic Development Zone. Electrolytic aluminum products are supplied internally for high-purity aluminum production. It will produce 43,000 tons of high-purity aluminum in '23, and plans to produce 25,000 tons in '24. Sales volume declined in '23 due to export tariffs, inventory volume increased, and gross sales profit of about 180 million yuan was not realized. With the resolution of the tariff issue, the company has actively organized and expanded overseas markets, and sales are expected to increase. 3) Aluminum foil: In '23, the company's Shihezi aluminum foil blank production base and Jiangyin aluminum foil production base were all undergoing equipment installation and commissioning. Some products were shipped, and the aluminum foil output was 10,000 tons. The 24-year aluminum foil project will enter a phase of rising production capacity, and the company's electrolytic aluminum products will supply aluminum foil blanks internally. In the future, battery foil will become the company's main product in the aluminum foil sector.
Overseas business continues to expand, and there are many positive factors in the company's operation
1) In terms of overseas projects, the company acquired a local mining company in Guinea. The project has a production capacity of about 6 million tons/year for bauxite production and transportation. Currently, the project has entered the production and mining stage and is about to be shipped domestically, which can meet the company's demand for raw materials for bauxite. At the same time, the company is setting up bauxite mining and alumina production projects in Indonesia, and is expected to make additional incremental contributions in the medium to long term. 2) In terms of the company's operations, the company's balance ratio has dropped from 60.23% in 2021 to 56.38% in 24Q1. Financial expenses have remained stable in 2023. We expect the company to further reduce costs. At the same time, the subsidiary Tianyu Limited focuses on supporting high-tech enterprises and paid corporate income tax at a 15% tax rate in 23-25, which is expected to contribute positively to the company's performance.
Investment advice: With the development of new domestic incremental measures and inventory policies, compounded by supply-side constraints, the supply and demand situation for electrolytic aluminum is expected to remain relatively good. In anticipation of the Federal Reserve's interest rate cut, aluminum prices are also supported positively. Due to the rise in aluminum prices and the decline in the company's operating costs, we raised the company's net profit from 34.3/3.66 billion yuan to the mother in 24/25. We expect the net profit to be 36.3/41.2/4.35 billion yuan for 24-26, which is 10/8/8 times PE, which is at a lower level than companies in the same industry, maintaining a “buy” rating.
Risk warning: risk of overseas operations; risk of fluctuations in raw materials and energy prices; risk of macroeconomic fluctuations.