Core views:

In 24Q2, the company predicted a 91% to 127% month-on-month increase in net profit, which greatly exceeded expectations. The company released a performance forecast. In 24Q2, the company expects to achieve net profit of 4.27-5.07 billion yuan, an increase of 166%-216% year over year and 91% to 127% month on month. The main reasons for the significant month-on-month improvement in 24Q2 performance are: 1. Electrolytic aluminum: 24Q2 aluminum prices rose slightly month-on-month, and the resumption of production of electrolytic aluminum in Yunnan. It is estimated that the company's profit in the electrolytic aluminum sector increased month-on-month. According to Wind, the average price of 24Q2 SHEF aluminum rose 8% to 20,647 yuan/ton. Mysteel estimates that the average total cost of electrolytic aluminum in China increased by 2%, and the estimated gross profit per ton of electrolytic aluminum increased by 1,186 yuan/ton. 2. Alumina: The average price of alumina increased month-on-month in 24Q2, and it is estimated that the company's alumina gross profit increase. According to Wind, in 24Q2, the average price of alumina nationwide was 3,633 yuan/ton, up 8% month-on-month, and the average price of bauxite in Guinea rose 2% month-on-month to 72 US dollars/ton. Mysteel estimated the domestic cost of alumina was 2,804 yuan/ton, up 0.7% month-on-month.

Profit forecasting and investment advice. As a leader in the electrolytic aluminum and alumina industry, China Aluminum has a higher self-sufficiency rate for bauxite and alumina compared to comparable companies, and the overall cost is more stable. The company continues to reduce costs and increase efficiency. The rapid rise in alumina prices since 2024 enhances the company's performance flexibility. We expect the company's EPS to be 0.92/0.98/1.06 yuan/share in 2024-2026. Based on the company's new production capacity and considering the progress of aluminum and water production in the southwest region, the company's 2024-2026 production growth trend is quite clear. Judging from historical valuations, China Aluminum, as a leading company integrating the aluminum industry, has a high self-sufficiency rate of bauxite and alumina. Its PE valuation is higher than that of comparable companies. Referring to the historical valuation differences between China Aluminum and comparable companies, and considering the principle of prudence, we gave China Aluminum a reasonable PE valuation of 15 times in 2024, corresponding to a reasonable overflow value of 13.82 yuan/share, according to the current share price ratio of AH, H The reasonable value of the shares is HK$9.02 per share, maintaining a “buy” rating.

Risk warning. The macroeconomic economy fluctuated greatly, the price of electrolytic aluminum fell, the price of alumina fell, the price of electricity rose, and the production of alumina and electrolytic aluminum fell short of expectations.