Matters:
The company announced that Tianjin Lizhong Alloy, a wholly-owned subsidiary, recently obtained a project designation from an important strategic customer for integrated die-casting aluminum alloy materials.
Commentary:
The heat-free material project was finally implemented on target. Lizhong announced that it received a project target from an important strategic customer for integrated die-casting aluminum alloy materials. Implementation of the project began at 7M24, with a three-year cycle of 75,000 tons and a total transaction amount of 1.5 billion dollars. The project is automatically postponed for 1 year without objection 1 month prior to expiration. This target will achieve large-scale mass production of the company's integrated die-casting heat-free alloy materials, help the company continue to expand the market size of integrated die-casting heat-free alloy materials in the fields of multiple applications, diverse customer coverage, and segmented terminal product applications, and further enhance the company's profit level.
The company has continuously promoted mass production of thermal materials over the past 1-2 years: 1) In 2020, Lizhong Heat-Free Materials has achieved mass production on the three-electric system. It has been verified by the market. It is also promoting cooperation and mass production with automakers and die-casting plants in the field of integrated die-casting structural parts. It is also recommended to continue to focus on new models/replacement models mass-produced by integrated die-casting in the next quarter. 2) At the end of December 2023, the company announced that its material grade LDHM-02 (HB3) had obtained a heat-free material approval certificate from a leading NEV company. 3) The strong partnership with Shuai Yichi announced in early 2024 is also expected to promote further promotion of heat-free materials in Lizhong.
Over the past month, the pace of implementation of the company's heat-free materials has accelerated, and market expectations have finally been fulfilled. At the end of May, the company issued two consecutive announcements: the 5/21 announcement obtained the qualification certification for heat-free alloys from a leading NEV company, the 5/22 announcement obtained technical certification for the supply of heat-free materials from another leading NEV company, and finally obtained the target for the heat-free materials project on 6/19. The company's mass production of heat-free materials was slow in the previous 1-2 years, and market expectations were not high, which also caused the stock price to face downward pressure. The announcement's disclosure represents the final fulfillment of market expectations over a long period of time.
The company's three major businesses are growing steadily: ① Foundry aluminum alloy: integrated die casting drives the expansion of the aluminum casting industry, and its existing leading position is expected to strengthen in the field of integrated die-casting materials. Previously, the sector was at a low profit level due to factors such as the epidemic and inventory. It has recovered significantly in 2023, and future performance is expected to continue to recover and grow; ② Aluminum alloy wheels: continue to achieve 20% + growth in the future, with domestic new energy and overseas high-end and large wheel orders continuing to rise sharply; ③ Intermediate alloy: global leader, which is expected to rise steadily in volume and price in the future; Intermediate alloy: global leader, is expected to rise steadily in volume and price in the future. Converted growth.
Investment advice: The aluminum alloy casting sector still has a recovery logic in 2024. After the targeted implementation of heat-free materials, the volume will gradually be released starting at 7M24, and the wheel and intermediate alloy sectors are expected to continue the sharp upward trend in volume and price. According to the company's forecast for mass production of heat-free materials, we adjusted the company's net profit forecast for 2024-2026 from 940 million yuan, 970 million yuan, and 1.20 billion yuan to 940 million yuan, 1.0 billion yuan, and 1.19 billion yuan, corresponding to growth rates of +55%, +6%, and +19%, corresponding to 13 times, 12 times, and 10 times the current PE. According to the segment valuation, we maintain the company's 2024 target PE 19.0 times, corresponding to a target market value of about 18 billion yuan and a target price of 28.3 yuan. Maintain a “strong” rating.
Risk warning: The macro-level situation affects automobile production and sales, the promotion of integrated die-casting falls short of expectations, the promotion of new lithium battery materials business falls short of expectations, domestic aluminum prices fluctuate too much, and aluminum prices at home and abroad are inverted.