Net profit to mother decreased by 1.28% year-on-year in the first half of '24, maintaining that the purchase rating company achieved operating income of 4.075 billion yuan, yoy +15.37%; net profit to mother was 0.12 billion yuan, yoy -1.28% in the first half of '24. Among them, the company achieved revenue of 2.212 billion yuan (yoy +20.29%, qoq +18.69%) and net profit to mother of 59.0681 million yuan (yoy -16.47%, qoq -2.72%) in 24Q2. Affected by the increase in corporate expenses and income tax, we have revised the company's 24-year results. The company's net profit for 24-26 is 0.298/0.928/1.439 billion yuan, respectively (previous value of 0.42/1.042/1.491 billion yuan for 24-26, respectively). Comparatively, the company's 25-year Wind unanimously expected an average PE (25E) value of 18.4. Considering that the company relies on central enterprises and has a stable position as a leader in the magnesium industry, the 25/26 production release was high. The company was given 20.0X PE (25E) with a target price of 18.8 yuan, maintaining a “buy” rating.

Magnesium prices were under pressure and expenses rose month-on-month in the second quarter, driving down the company's net profit month-on-month. 24H1 The company's comprehensive gross profit margin and net interest rate were 11.85%/2.80%, respectively, +0.13pct/-1.14pct, respectively. Among them, due to falling magnesium prices and rising rates, the company's gross profit margin and net interest rate for the second quarter were -0.05 pct/-0.92 pct, respectively. In terms of rates, the company's total rate for the first half of '24 was 8.72%, yoy+1.03pct. Sales/ management/ R&D/ finance cost ratios were 0.37%/2.22%/4.89%/1.24%, respectively. Due to the increase in R&D project investment, the company's 24Q2 R&D expenses increased by 31.39% month-on-month, causing a certain drag on expenses.

The company's R&D and production capacity expansion go hand in hand, and production release is imminent

The company focuses on the lightweight industry, mainly magnesium. In the first half of the year, the company's subsidiary Chongqing Boao Magnesium Aluminum Metal Manufacturing Co., Ltd. signed a development agreement with an automobile manufacturer for oversized magnesium alloy integrated die castings to jointly develop oversized magnesium alloy integrated die castings. Furthermore, the company is actively promoting the expansion of the project. According to the company's disclosure, the 0.3 million ton high-performance magnesium-based light alloy and deep processing supporting project in Qingyang, Anhui has entered the climbing stage; the Chaohu Yunhai Yunhai expansion project will be put into operation in the second half of 2024; five Yunhai high-performance magnesium-based light alloy and 0.05 million ton magnesium alloy deep processing projects are under construction. After completion of the above projects, the company will be able to reach the scale of 0.5 million tons of raw magnesium and 0.5 million tons of magnesium alloy.

Magnesium prices were under pressure in the first half of the year due to a slowdown in downstream demand

According to Baichuan Yingfu, the average prices in the domestic market for magnesium ingots and magnesium alloys in the first half of 2024 were 0.018/0.0209 million yuan/ton, down 11.58%/15.30%, respectively. The year-on-year decline in prices was mainly due to a slowdown in downstream demand. Downstream demand for magnesium is mainly for magnesium alloys and aluminum alloy materials. Terminal application scenarios are concentrated in aerospace, automobiles, and construction doors and windows. Affected by factors such as the slowdown in overseas automobile sales and the decline in domestic investment in the construction industry, the demand side of magnesium was relatively weak in the first half of the year, which had a certain impact on prices. Looking ahead to the future market, the magnesium industry is still in the traditional low season from July to August. At the same time, against the backdrop of a slowdown in overseas NEV growth, magnesium prices may fluctuate at a low level in the second half of the year. However, we believe that lower prices may have a positive effect on the promotion of integrated magnesium alloy die-casting.

Risk warning: Downstream demand in the industry falls short of expectations, magnesium prices have dropped sharply, and the prices of resources such as coal have risen.