[Core Conclusion] We predict that in 2024-2026, the company's net profit to mother will be 48.53, 52.73 billion yuan, and 5.671 billion yuan, EPS will be 1.40, 1.52, and 1.64 yuan, PE will be 10, 10, and 9 times, giving the company 14 times PE in 2024. The target price is 19.60 yuan/share for the first time covered, giving it a “buy” rating.
[Report Highlights] The market believes that the company is a beta variety. Following the rise and fall of aluminum prices, we believe that the company has strong alpha: 1) aggressive, the price of electrolytic aluminum rises and falls easily, the company has strong certainty in volume growth and sufficient performance flexibility; 2) can be maintained, balance sheet repair+report quality improvement, and enhanced shareholder returns+increased dividends can be expected.
[Main logic]
1. Industry beta: From cost support to demand drive, the profit center of electrolytic aluminum is expected to move upward under a tight balance. 1) On the supply side, the production capacity of the industry is close to 45 million tons, and the capacity utilization rate remains above 90%, which means that there is limited room for production capacity and production release; in recent years, electricity restrictions have been normalized in hydropower provinces, further exacerbating the fragility of the supply of electrolytic aluminum; both Lunan Aluminum and Shanghai Aluminum stocks are in a relatively low position, which also provides effective support for the price of electrolytic aluminum. 2) On the demand side, we expect the amount of aluminum used in construction in 2024 and 2025 to be the same as in 2023. The amount of aluminum used in transportation will be 989.22 and 10.703 million tons, respectively, and the amount of aluminum used in power electronics will be 10,56.34 and 11.81 million tons, respectively. 3) Production capacity is close to the ceiling+normalization of production limits in hydropower economies+ low water levels, and supply is relatively rigid; the demand-side conversion of old and new kinetic energy has experienced real estate stress tests. Emerging industries are worth looking forward to. The price of electrolytic aluminum rises and falls easily under a tight balance between supply and demand.
2. Company α: Strong quantitative increase certainty (elasticity) +report quality improvement (dividends) +green power resource advantages.
1) The electrolytic aluminum industry is highly concentrated (the top 10 companies account for more than 70% of total production capacity), and future volume increases will be mainly due to mergers and acquisitions; under the relatively rigid output of the entire industry, the company's 2024 electrolytic aluminum production target will increase by 12.52% compared to 2023. The performance is flexible enough, and the increase is invaluable. 2) In 2018-2023, the company's balance sheet was repaired, and the report quality was significantly improved, and its profitability improved significantly, and it has the ability to increase dividend ratio and shareholder returns; at the same time, central enterprises include market value management assessment targets in the performance evaluation index system. We expect the company to strengthen shareholder returns and increase dividend ratios worth looking forward to; 3) Under the dual carbon target, green aluminum is an inevitable trend and direction for the development of the electrolytic aluminum industry. Relying on the advantages of Yunnan Province's rich green power resources, brand value and economic value will be further enhanced.
Risk warning: downstream demand and projects under construction fall short of expectations, fluctuating raw material prices, deteriorating competitive landscape