Incident: The company released its 2023 annual report and 2024 quarterly report on April 26, 2024. The revenue for 2023 was 26.44 billion yuan, -5% year-on-year; net profit to mother was 1.35 billion yuan, -16% year-on-year. The company plans to pay a cash dividend of $1.3 (tax included) for every 10 shares, at a dividend rate of 1.0% based on the closing price on April 26, 2024.
Revenue for the first quarter of 2024 was 7.19 billion yuan, +18% year-on-year; net profit to mother was 360 million yuan, +2% year-on-year.
Comment:
The year-on-year decline in processing fees dragged down the 2023 performance. In 2023, the company achieved 1.24 million tons of aluminum sheet and foil sales, an increase of 6% over the previous year; of these, 1.01 million tons of aluminum sheet and 230,000 tons of aluminum foil were sold. The company's consolidated gross profit margin in 2023 was 9.46%, down 2 percentage points year over year. The main reason for the year-on-year decline in profits was the year-on-year decline in the prosperity of the aluminum processing industry, which led to a year-on-year decline in processing costs. In 2023, the gross profit per ton of aluminum strip products was 1,713 yuan, a year-on-year decrease of 18%; the gross profit per ton of aluminum foil products was 2,551 yuan, a year-on-year decrease of 14%.
2024Q1 earnings rebounded month-on-month in a single quarter. The net profit of 2024Q1 in a single quarter was 360 million yuan, up 94% from the previous quarter; net profit after deducting non-return to mother was 270 million yuan, an increase of 125% over the previous quarter. Mainly due to a recovery in processing costs and an increase in production and sales. The production and sales volume of 2023Q1-2024Q1 aluminum sheet and foil in a single quarter was 30/32/33/350,000 tons, respectively, and net profit after deducting non-return to mother was 2.7/3.6/2.9/1.2/270 million yuan, respectively. The profit of 2024Q1 improved significantly from month to month.
Electrolytic aluminum is gradually being incorporated into the national carbon market, and recycled aluminum is clearly benefiting. On March 15, the Ministry of Ecology and Environment publicly solicited public comments on the “Enterprise Greenhouse Gas Emissions Accounting and Reporting Guidelines” and the “Technical Guidelines for Enterprise Greenhouse Gas Emissions Verification” for the aluminum smelting industry. We believe that the introduction of the emission accounting guidelines for the electrolytic aluminum industry means that the domestic electrolytic aluminum industry is getting closer to being included in the national carbon trading market. According to IAI statistics, the carbon dioxide emissions from producing 1 ton of recycled aluminum are only 0.2 tons (compared to 13 tons of aluminum for thermal power). According to the calculation of the domestic carbon price of 102.5 yuan/ton on April 26, 2024, each ton of recycled aluminum is expected to save 1,312 yuan in carbon tax costs.
The company currently has a production capacity of 1 million tons/year of recycled aluminum and a target production capacity of 1.4 million tons/year (raw materials account for about 70%). By the end of 2023, the company now has an annual processing capacity of more than 1 million tons of scrap aluminum and 120,000 tons of aluminum ash comprehensive utilization. In the future, the company aims to achieve annual production and sales of 2 million tons of aluminum sheet and foil and 1.4 million tons of recycled aluminum, that is, recycled aluminum accounts for about 70% of the raw material sources.
Profit forecast, valuation and rating: Considering the improvement in industry sentiment and the cost reduction brought about by the expansion of recycled aluminum production, the net profit for 2024/2025 is estimated to be 16.1/1.83 billion yuan (down 27.4%/26.5% from the previous forecast), up 19%/14% year on year, and an additional 2026 net profit forecast of 2.04 billion yuan, up 12% year on year. The PE valuation corresponding to the current stock price is 10/9/8X, respectively. The decline in the company's stock price in the early period already reflects a decline in performance. Considering the gradual improvement in the prosperity of the aluminum processing industry, the company's “gain” rating was maintained.
Risk warning: The risk of large fluctuations in aluminum prices; the production capacity release of the company's projects under construction falls short of expectations.