Matters:

The company released its 2023 annual report and quarterly report, and achieved revenue of 26.85 billion yuan, +0.2% year on year; net profit of 4.56 billion yuan, +14.4% year on year, of which Q4 achieved revenue of 7.12 billion yuan, +2.8% year on month, +9.1% month on month; net profit to mother of 970 million yuan, +33.7% year on month; company Q1 achieved revenue of 7.34 billion yuan, +7.3% month on month; net profit to mother of 1.94 billion yuan, +20.2% month on month 99.4%. The month-on-month increase was mainly due to the obvious accrual charges in the fourth quarter.

Comments:

The price of coal rebounded against the market, and the electrolytic aluminum sector declined slightly. In 2023, the company achieved gross margin/net margin of 31.8%/18.7%, respectively, +0.4 pct/+1.1 pct year on year, of which coal: achieved sales volume of 46.4743 million tons, +1.04% year on year; comprehensive sales price of tons of coal was 204 yuan/ton, achieving gross profit margin of 55.4%, +3.9pct year on year; electricity: achieved sales volume of 8.16 billion kilowatt-hours, +5.6% year on year, consolidated sales price of 0.3 yuan/kilowatt-hour, year-on-year ratio of -4.2%, realized gross profit margin of 34.6% 1.7 pct; electrolytic aluminum: achieved sales volume of 887,000 tons, +1.8% year over year; the comprehensive sales price of a single ton was 16312.5 yuan/ton, -6.6% year over year, achieving a gross profit margin of 15.5%, and -2.8 pct year on year.

Long-term cooperation has created resilience in the main business, and the flexibility of the electrolytic aluminum business can be expected. Coal sector: In 2024, the thermal coal industry as a whole faced a central decline in the first quarter due to factors such as accumulation of terminal inventories and high imports. However, the company's coal is mainly exported by the Changxie method and is an open pit coal mine with good mining conditions. Currently, the coal production capacity is 48 million tons/year, and earnings are expected to stabilize against the market; electrolytic aluminum sector: the increase in production capacity in the high-energy electrolytic aluminum industry is limited in the context of double carbon. According to Baichuan Yingfu data, the effective production capacity of electrolytic aluminum in 2023/2024 was -1.2%/+0.2%, respectively. The operating rate showed an upward trend year by year. The operating rate has risen year by year, from 76% in 2019 to 89% in March 2024. Central downward shift, January-March 2024 The import volume was 721,000 tons, +224.8% YoY. After 4 years of capacity-side incremental restrictions, the price flexibility of electrolytic aluminum can be expected. Furthermore, the company's electrolytic aluminum business has its own power plant, which is located on the left side of the cost curve; in the traditional power business sector, the company's thermal power plant has an installed capacity of 1.2 million kilowatts. The Huolin River Kengkou Power Plant, which mainly uses its own low calorific value coal, has low transportation costs, and is one of the most profitable thermal power generators in Northeast China.

The increase in production capacity in the main business is clear, and the transformation of green electricity is progressing steadily. On the coal side, the 2 million tons/year production capacity increase of the company's southern open pit coal mine was officially approved by the State Mine Safety Administration in August 2023, marking that the production capacity of the power investment energy coal mine officially reached 48 million/ton, and it is expected that all of the increased nuclear production capacity will be achieved in 2025; the electrolytic aluminum end will vigorously promote the preparation process for the Zahannur aluminum alloy renewal project (Zalu Phase II project). It is expected that the electrolytic aluminum production capacity will reach 1.21 million tons in 2025; Fengguang New Energy's installed side, several new energy projects will be put into operation by the end of 2023. 4.55 million kilowatts, an increase of 2.38 million kilowatts compared to 2022. It is expected to reach more than 7 million kilowatts by the end of the 14th Five-Year Plan period, which is expected to become another support point for corporate profit growth.

Investment advice: In recent years, the company's new energy business has developed steadily, the main business revenue is stable, and the electrolytic aluminum pattern continues to be optimized. We forecast net profit to mother for 2024-2026 to be $54.26/60.75/6.553 billion yuan, respectively, and the corresponding PE is 9x, 8x, and 7x, respectively. Referring to the company's historical valuation in the past three years, we gave the company a target PE of 10 times in 2024, corresponding to a target price of 24.20 yuan, to maintain the “recommended” rating.

Risk warning: LVDC's installed capacity falls short of expectations, demand for electrolytic aluminum declines, Changxie price changes