Key points of investment

Event: The company publishes its 2024 semi-annual report. The company achieved revenue of 24.65 billion yuan, +39.49% year over year; realized net profit of 2.52 billion yuan, +66.26% year over year; realized net profit deducted from mother of 2.39 billion yuan, +60.19% year over year. The gross margin of 2024H1's electrolytic aluminum products was 15.43%, down 2.94 percentage points year on year. The gross margin declined when aluminum prices rose year on year, mainly due to the rise in the price of alumina as a raw material; the gross margin of aluminum processing products was 15.61%, up 2.10 percentage points year on year. The company achieved revenue of 13.29 billion yuan in a single quarter in 2024Q2, +61.5% YoY, +17.0% month-on-month; realized net profit of 1.36 billion yuan to mother, +115.0% YoY, +16.5%. In addition, the company plans to distribute a cash dividend of RMB 2.3 (tax included) to all shareholders for every 10 shares, and a total cash dividend of 0.798 billion, with a dividend payment rate of 31.67%.

The prices of 2024H1 electrolytic aluminum and alumina all showed an upward trend, and the company's raw aluminum production increased sharply by 38.7% year on year. In terms of price, the average price of 2024H1 aluminum in China's Yangtze River Nonferrous Market was 19798 yuan/ton, +7.1% year-on-year. At the same time, the raw material alumina has risen sharply, and the price of pre-baked anodes has dropped significantly. The average price of 2024H1 alumina (Henan) was 3508 yuan/ton, +18.3% year on year; the average price of pre-baked anodes (northwest China) was 4,480 yuan/ton, -25.1% year on year. In terms of production, 2024H1 produced 0.723 million tons of alumina, 0.398 million tons of carbon products, 1.351 million tons of raw aluminum, and 0.588 million tons of aluminum alloy and processed aluminum products, which were -1.4%, +4.7%, +38.7%, and +1.9% year-on-year respectively. Raw aluminum production increased dramatically. According to the 2023 annual report, the company's main production and operation goals in 2024 are: alumina production of about 1.4 million tons, electrolytic aluminum production of about 2.7 million tons, production of aluminum alloy and processed products about 1.26 million tons, and production of carbon products about 0.8 million tons. According to the semi-annual report data, the company keeps a close eye on the annual production target.

Profit forecast. The company has built a complete industrial chain from bauxite, alumina, electrolytic aluminum, aluminum alloy to the final product green aluminum, reducing processing costs of intermediate raw materials and controlling upstream raw material costs. As production of carbon products increases in the subsequent increase, the cost of electrolytic aluminum is expected to continue to decline. Considering the sharp rise in alumina prices during the year, we adjusted the company's 2024-2026 revenue to 49.8/53.7/57.5 billion yuan, respectively, and net profit to mother of 4.44/4.64/4.91 billion yuan respectively, with year-on-year growth rates of 12.2%, 4.4%, and 5.9%. The PE calculation corresponding to the closing price on August 26, 2024 was 9.13x, 8.75x, and 8.26x, respectively, maintaining the “buy” rating.

Risk warning: The price of electrolytic aluminum has dropped sharply; raw material costs are rising rapidly; the risk of electricity restrictions and production restrictions in Yunnan