The results for the first half of the year were basically the same as in the same period last year. In the first half of 2024, the company achieved operating income of 4.075 billion yuan, a year-on-year increase of 15.37%; net profit to mother was 0.12 billion yuan, a year-on-year decrease of 1.28%. Among them, Q2 achieved operating income of 2.212 billion yuan, up 20.29% year on year and 18.69% month on month; realized net profit of 0.059 billion yuan, down 16.47% year on year, down 2.72% month on month. The first half results were basically the same as the same period last year.

Low magnesium prices affected the company's magnesium alloy business performance, and the magnesium deep processing business grew steadily. Due to the decline in demand for downstream auto parts, the price of magnesium ingots has shown a downward trend since the beginning of the year. As of July 26, the average price of magnesium ingots in 2024 was 18,940 yuan/ton, down 14.89% from the same period last year. The raw magnesium smelting end showed a loss trend throughout the industry. Low magnesium prices affected the company's magnesium alloy business performance in the first half of the year, but the company's cost advantage was significant, and the magnesium alloy business still contributed positive returns. At the same time, the company's magnesium deep processing business grew steadily, achieving revenue of 0.533 billion yuan in the first half of the year, an increase of 21.29% over the previous year; the gross profit margin was 13.43%, an increase of 5.5 percentage points. The company's magnesium deep processing business is expected to become an important growth point for future performance.

Downstream demand continues to expand, pending the release of production capacity in new construction projects. On January 12, the company signed a strategic cooperation agreement with Hydrogen Feng (China). The two sides cooperated on marketing of magnesium-based solid hydrogen storage equipment and implementation of application scenarios to accelerate the large-scale development of magnesium-based solid hydrogen storage. In March, Chongqing Boao, a subsidiary of the company, signed a development agreement with an automobile manufacturer for oversized magnesium alloy integrated die castings. Through strategic cooperation, we have completed technical research throughout the process from product design, material development, process verification, and small-batch production, and further mastered the core technology for the development of oversized magnesium alloy integrated die castings. The company continues to explore the downstream application of magnesium, and is expected to become a leading integrated enterprise in the magnesium industry in the future.

The company's Anhui Baomei project has entered the production climbing phase. The Chaohu Yunhai expansion project will be put into operation in the second half of the year, while five Yunhai expansion projects are under construction. The company's raw magnesium and deep processing production is expected to gradually increase.

Investment advice: As the Qingyang and Chaohu projects are put into operation, the company's raw magnesium production capacity will grow by leaps and bounds. At the same time, the company will benefit from the increase in the penetration rate of downstream magnesium building templates and magnesium for lightweight automobiles, and the performance is expected to increase steadily. Considering the consolidation of low magnesium prices this year, and at the same time, the company actively adjusted the pace of releasing new production capacity, we lowered the company's profit forecast. The company's 2024-2026 revenue is expected to be 9.561/13.922/21.829 billion yuan; net profit to mother is 0.337/0.822/1.142 billion yuan, respectively; and EPS is 0.48/1.16/1.61 yuan/share, respectively. Maintain the company's “buy” rating.

Risk warning: magnesium prices fall, project construction progress falls short of expectations, demand growth falls short of expectations