Incident: The company released its 2024 semi-annual report. The company achieved operating income of 13.785 billion yuan in the first half of 2024, a year-on-year decrease of 6.83%; achieved net profit attributable to shareholders of the parent company 2.074 billion yuan, an increase of 103.45% year on year; realized net profit attributable to shareholders of the parent company after deduction was 1.961 billion yuan, an increase of 168.42% year on year. The company achieved operating income of 6.96 billion yuan in a single quarter in 2024Q2, a year-on-year decrease of 11.36% and a month-on-month increase of 1.97%; achieved net profit attributable to shareholders of the parent company of 1.354 billion yuan, up 161.47% year on year and 88.06% month on month; realized net profit attributable to shareholders of the parent company after deduction of 1.255 billion yuan, up 200.95% year on year and 77.88% month on month.

Aluminum prices rose across the board, and the company's profits were greatly released: the company produced 0.5854 million tons of electrolytic aluminum in the first half of 2024, up 1.28% year on year; produced 1.093 million tons of alumina, up 6.81% year on year; produced 0.016 million tons of high purity aluminum, a decrease of 25.58% year on year; and produced 0.006 million tons of aluminum foil. In the first half of 2024, the average domestic price of electrolytic aluminum (tax included) reached 19798.38 yuan/ton, up 7.08% year on year. The average sales price of the company's self-produced electrolytic aluminum increased 6.7% year on year during the reporting period, while the year-on-year decline in pre-baked anodes, transportation costs, etc. hedged the increase in alumina procurement costs. The company's complete cost of electrolytic aluminum remained the same as the same period last year, and gross margin increased 3.24 percentage points to 22.62% year on year, increasing the company's electrolytic aluminum business performance by 81.2% year on year. In the first half of 2024, the average domestic price of alumina (tax included) reached 3491.77 yuan/ton, up 20.90% year on year. The average external sales price of alumina increased by about 26.1% year on year during the reporting period, and the combined alumina sales volume increased 4% year on year, causing the company's gross margin of alumina to increase by 21.92 percentage points to 23.24% year on year in the first half of 2024, and the operating performance of the alumina sector increased by 108073.6% year on year. The overall rise in the prices of electrolytic aluminum and alumina led to a significant increase in the company's performance in the first half of 2024. Meanwhile, in the second quarter of 2024, domestic aluminum prices, especially alumina prices, accelerated. In 2024Q2, the average domestic price of electrolytic aluminum (tax included) reached 20536.78 yuan/ton, up 10.90% year on year, up 7.82% month on month; 2024Q2 domestic average price of electrolytic aluminum (tax included) reached 365.64 yuan/ton, up 27.94% year on year, up 10% month on month, causing the company's 2024Q2 performance to increase significantly from month to month.

The aluminum industry chain is integrated, and the advantages of upstream resource layout are evident: the resumption of domestic bauxite production falls short of expectations, overseas bauxite imports are unstable, domestic alumina prices continue to be strong this year, and the upstream enjoys marginally higher premium rights in profit distribution within the aluminum industry chain. Meanwhile, the company adheres to the integrated layout of the aluminum industry chain. In the upstream resource-side bauxite sector, the company acquired shares in local mining companies in Guinea and obtained exclusive purchasing rights for their bauxite products. The project has a production and transportation capacity of about 6 million tons/year of bauxite, and can also be transported and loaded to large ocean freighters to China using existing logistics channels.

At present, the project has entered the production and mining stage and is about to be shipped domestically. It can meet the company's demand for raw materials for bauxite and greatly reduce the cost of bauxite raw materials. The company has a high-quality and reliable supply of bauxite resources, which will guarantee the company's profitability under relatively tight upstream supply chains to the greatest extent, and highlights the company's strong competitive advantage in the industry with an integrated and complete layout of the aluminum industry chain.

Investment proposal: The company's net profit attributable to shareholders of the parent company in 2024-2026 is estimated to be 4.114/4.38/5.272 billion yuan, and EPS is 0.88/0.94/1.13 yuan, respectively, corresponding to 2024-2026 PE 7.8/7.3/6.1 times. The company's competitive advantage in the integrated electrolytic aluminum industry chain gradually became apparent, and profitability was fully released, and the “recommended” rating was maintained.

Risk warning: the risk of a sharp drop in the price of aluminum for coal electrolysis; the risk of a sharp drop in the price of alumina; the risk of electricity costs and pre-baked anode costs rising sharply; the risk that the company's new construction project progress falls short of expectations.