The company has a complete integrated aluminum industry chain, and the proportion of high-end products continues to increase. The company has built the world's only complete aluminum processing shortest distance industrial chain with thermoelectric, alumina, electrolytic aluminum, casting, aluminum profile/hot rolling-cold rolling-foil rolling, and waste aluminum recycling (recycling) in the same region. In 2023, the sales volume of the company's high-end products accounted for about 14% of the company's total sales of aluminum products, an increase of more than 1 percentage point over the same period last year; the gross profit of high-end products accounted for about 30% of the company's total gross profit of aluminum products, an increase of nearly 9 percentage points over the same period last year.
Upstream - The company has a total alumina production capacity of 4 million tons in Indonesia, and the price of alumina is expected to remain high due to tight supply and demand. By the end of 2023, the company's domestic alumina production capacity was 1.4 million tons, and Indonesia's alumina production capacity was 2 million tons, for a total of 3.4 million tons. On April 29, 2024, the company plans to build an annual output of 2 million tons of alumina and other supporting public and auxiliary projects in Indonesia. The company plans to have a total alumina production capacity of 5.4 million tons. Judging from the monthly supply and demand balance of alumina in China, the overall supply and demand for alumina will be tight in 2024. We believe that under the scarce supply and demand structure, alumina prices are expected to remain high.
Downstream - The company focuses on high-end products such as automotive boards, aviation boards, and battery aluminum foil. The price of the company's automobile board and battery aluminum foil is high compared to the processing fee for cans. The company's release of high-end products such as automobile board, aviation board, and aluminum foil will drive the volume and price of the company's processing sector to rise sharply. (1) Automobile board: Global automobile board demand is expected to grow at a compound annual rate of about 14% in 2020-2026. The company's automobile board production capacity is 200,000 tons, and the production capacity is under construction of 200,000 tons. (2) Aviation board:
Global passenger aircraft were delivered from 2002 to 2021, and global passenger aircraft deliveries are expected to reach 42,428 in 2022 to 2041, an increase of 86.34%, which is expected to significantly boost the demand for aviation aluminum. The company plans an aviation board production capacity of 50,000 tons. (3) Battery aluminum foil: According to GGII, the demand for battery aluminum foil is expected to reach 542,500 tons and 1.05 million tons respectively by 2025. As of September 2022, the company's aluminum foil production capacity was 910,000 tons, including a 21,000 ton dedicated production line for power battery foil. Increased demand for battery aluminum foil will drive the company's battery aluminum foil product sales growth.
Profit forecast and investment advice: We forecast the company's revenue for 2024-2026 to be 318.48/341.77/36.733 billion yuan, respectively, net profit to mother of 38.40/41.96/4.615 billion yuan, and PE 11.53/10.55/9.59 times, respectively. We selected three companies integrated in the aluminum industry chain. The average PE in 2024-2026 was 11.94/10.62/9.72 times. The company's alumina production capacity in Indonesia is large, and the share of sales of high-end aluminum processing products is expected to continue to increase. The company's valuation is lower than the average valuation of comparable companies, and there is still room for improvement. For the first time, coverage gave it a “buy” rating.
Risk warning: The company's production capacity construction for high-end aluminum processing products such as automobile panels and aviation boards fell short of expectations; the dilution of the company's Indonesian asset spin-off and listed shares exceeded expectations; the price of alumina fell beyond expectations.