1. A leader in the integrated industrial chain of the domestic aluminum industry, deeply involved in the aluminum industry for more than 40 years. Yunnan Aluminum Co., Ltd., formerly known as Yunnan Aluminum Factory, was founded in 1970, restructured and listed in 1998, became one of the top 10 national aluminum enterprises in 1999, and joined the China Alcoa Group in 2019. It is the only “national environmentally friendly enterprise” in the national nonferrous industry and industrial enterprises in western China, and a national green factory. In the industrial chain layout, the company has its own bauxite resources and mining upstream. The midstream covers the production and smelting of alumina, anodized carbon, graphitization, electrolytic aluminum, etc., while the downstream covers various aluminum processing application products, creating an integrated green industrial chain. By the end of H1 in 2024, the company had a production capacity of 1.4 million tons of alumina, 3.05 million tons of green aluminum, 1.6 million tons of aluminum alloy and aluminum processed products, and 0.82 million tons of carbon products.

2. China's bauxite resources are poor, and the production capacity of electrolytic aluminum is close to the “ceiling”. Bauxite reserves are mainly concentrated in countries such as Guinea, Vietnam, Australia, Brazil, and Jamaica. According to USGS statistics, the top five bauxite reserves in 2023 together account for about 71%. In comparison, China's bauxite resources are poor, and external dependence is high. Constrained by domestic electrolytic aluminum industry policies, the “ceiling” of electrolytic aluminum production capacity is about 45 million tons. According to data from the National Bureau of Statistics and others, since April 2024, domestic electrolytic aluminum monthly production has remained at a high level, and the monthly capacity utilization rate has remained above 95%, which is close to the upper limit of production capacity.

3. The company has excellent bauxite resource endowments, and the profit advantage of electrolytic aluminum is obvious. The company's bauxite resources are mainly concentrated in southeastern Yunnan (Wenshan Prefecture), Yunnan Province. The subsidiary Yunlu Wenshan has an alumina production scale of 1.4 million tons/year. According to the Wenshan Municipal Government, as of June 23, 2023, Wenshan Quanzhou had a cumulative proven amount of 133.32 million tons of bauxite resources, an average alumina grade of 49.91%, and an average aluminum-silicon ratio of 5.77. The company's bauxite production capacity can reach 2.64 million tons/year. According to estimates, the company's bauxite self-sufficiency rate is about 25%, alumina self-sufficiency rate is about 30%, and the pre-baked anode self-sufficiency rate is about 74%, respectively. According to SMM and other data, the average price in September 2024 was used as an example to produce 1 ton of electrolytic aluminum, with a gross profit of about 0.0022 million yuan. The company's corresponding gross profit is about 0.0031 million yuan.

4. Profit forecast and investment suggestions: We expect the company's revenue for 2024-2026 to be 48.7/51.7/55 billion yuan, and net profit to mother of 4.9/5.4/5.8 billion yuan respectively, and corresponding EPS of 1.40/1.56/1.68 yuan/share, respectively. We are optimistic about the company's long-term development trend, covered for the first time, and gave it a “buy” rating.

Risk warning: risk of product price fluctuations, electricity price adjustments and power restrictions, downstream demand falls short of expectations