Incident: The company announced a pre-increase in performance. 2024H1 is expected to achieve net profit of 2.25 to 0.26 billion yuan, +42.4% to 64.6% year over year, of which single Q2 is expected to be 1.0 to 0.14 billion yuan, -1.3% to +32.2% year over year; 2024H1 is expected to achieve net profit without deduction of 2.15 to 0.25 billion yuan, compared to +38.1% to 60.6% year over year, of which single Q2 is expected to achieve 0.96 to 0.13 billion yuan year on year %~ +28.3%

Performance growth is mainly due to the company strengthening cooperation with important strategic customers, striving to increase market share and further expand the international market; actively exploring internally, improving capacity utilization, strengthening process control, strengthening R&D and lean management, and continuously promoting measures to reduce manufacturing costs and increase efficiency. The overall gross margin has increased, thus driving the growth of business performance.

Downstream demand is relatively stable, and raw material prices affect profit margins. From January to May 2024, China's cumulative beer production remained flat year on year, and soft drink production was +8% year over year. A recovery in downstream demand is expected to drive an increase in demand for metal packaging. On the cost side, the current price of aluminum is at a relatively high level in history, and the price of tinplate is in the historical median range. The average price of 2024Q2 aluminum ingots in a single quarter was +10.8% YoY, +7.6% month-on-month, and the average price of tinned plate coil Q2 was -5.5% YoY and -2.6% month-on-month. We expect the two-piece can business to be affected by rising costs, Q2 profits will be under relative pressure in the short term, and the three-piece can cost will improve and Q2 profits will continue to recover.

With the introduction of new production capacity, the company's business is expected to grow steadily. In terms of two-piece cans, the third phase of the Cambodia project was successfully completed in 2023, and continued to contribute in 2024. The domestic Ya'an plant also entered commercial production, laying a good foundation for subsequent two-piece business growth. In terms of three-piece tanks, construction of the Neijiang base is progressing steadily. Nanning plans to invest 0.11 billion yuan to build 3 three-piece can production lines, which is expected to better serve strategic customers and improve the regional market layout.

Profit forecast and rating: We are optimistic about the orderly expansion of the company's production capacity, actively promoting major customer strategies and expanding new customers, new categories, and new markets. Along with the steady recovery of downstream demand, the cost ratio is expected to be optimized. The net profit returned to mother for 2024-2026 is 0.471 billion yuan, 0.556 billion yuan, and 0.628 billion yuan respectively. The corresponding PE is 10x, 9x, and 8x, respectively. Referring to comparable company valuation levels, the company will be given a “recommended” rating.

Risk warning: Performance forecast data has not been audited and is subject to disclosure in semi-annual reports; fluctuating raw material prices; downstream demand falls short of expectations; increased industry competition, etc.