Incident: The company disclosed its report for the third quarter of 2024. Q3 revenue increased year over year and profit declined year over year. In Q3 2024, the company's revenue was 2.271 billion yuan, +11.86% year over year; net profit to mother was 33.9727 million yuan, -60.55% year over year; net profit after deducting non-return to mother was 20.5715 million yuan, -72.94% year over year. In 2024, Q1-Q3, the company's revenue was 6.347 billion yuan, +14.09%; net profit to mother was 0.154 billion yuan, -25.88% year over year; net profit after deducting non-return to mother was 0.124 billion yuan, or -33.73% year on year.

Magnesium prices continued to fall in Q3 2024. China's magnesium ingots in the third quarter of 2024 (#1）平均价格为19480 .78 yuan/ton, -18.48% year-on-year compared to the 2023 average price, and -2.92% month-on-month in Q2 2024. Magnesium prices remain low.

Upstream: The company is rich in dolomite resources, and the production base will have 0.5 million tons/year of raw magnesium and magnesium alloy production capacity after delivery. The company has rich reserves of dolomite resources. Chaohu Lake in Anhui has nearly 90 million tons, Qingyang, Anhui has 1.3 billion tons, and the five units have 0.58 billion tons, which are mainly used in magnesium metal, glass, steel manufacturing and construction industries. The company has four major raw magnesium and magnesium alloy production bases in Chaohu, Qingyang, Wutai and Huizhou, all of which have a raw magnesium and magnesium alloy production capacity of 0.5 million tons/year after delivery.

Downstream: Die-casting, hydrogen production and other fields will continue to be deployed in the first half of 2024. (1) Magnesium automobile die-casting parts: The company has six major magnesium alloy automobile die-casting production bases in Nanjing, Chaohu, Qingyang, Chongqing, Jingzhou and Tianjin, with more than 200 die-casting units and nearly 1,000 processing centers. It has component surface treatment capabilities and the ability to independently develop, design and manufacture molds. In March 2024, Chongqing Boao, a subsidiary of the company, signed an agreement with an automobile manufacturer to develop 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.

In June 2024, Nanjing Precision held the commissioning ceremony of the “Nanjing Precision and LGE E2H Automobile Triple Screen Magnesium Alloy Die-casting Project”. This commissioning ceremony marks the official entry of the E2H automobile triple screen magnesium alloy project into mass production. On the same day, Baowu Magnesium and LG Electronics signed the “Magnesium Alloy Strategy Letter of Intent”. (2) Magnesium hydrogen storage: On January 12, 2024, Baowu Magnesium 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 equipment.

Profit forecast: Magnesium prices continue to fall, and we lowered the company's profit forecast. We expect the company's 24-26 revenue to be 8.978/12.414/16.394 billion yuan, respectively, and net profit to mother of 0.306/0.705/0.958 billion yuan, corresponding to PE35.58/15.43/11.36 times. The company is expected to continue to work hard and maintain the “buy” rating through the advantages of industrial chain integration.

Risk warning: magnesium prices fell beyond expectations; magnesium demand growth fell short of expectations; the company's production capacity investment fell short of expectations