The company's revenue for the first three quarters of 2024 increased 23% year over year, and net profit to mother fell 8% year over year. In Q1-Q3 2024, the company achieved revenue of 16.733 billion yuan, +22.65% YoY; realized net profit attributable to mother of 0.727 billion yuan, -8.37% YoY; realized net profit of 0.688 billion yuan without return to mother, or -8.96% YoY. Among them, the third quarter achieved revenue of 5.739 billion yuan in a single quarter, +15.74% year-on-year, and -1.26% month-on-month; realized net profit of 0.284 billion yuan, or -25.25% year-on-year, and -28.99% month-on-month.

Profitability declined, and the expense ratio and balance ratio were generally stable during the period. In Q1-Q3 2024, the company's gross profit margin was 11.05%, -5.35pct; the net profit margin was 4.79%, -3.08pct. Sales/management/R&D/finance expense ratios were 0.20%/1.59%/1.13%/1.79%, respectively. Compared with the year-on-year decline of 1.04 percentage points in 2023Q1-Q3, cost control was very effective. Looking at the third quarter of a year, the company's gross profit margin was 12.57%, -6.35 pct year on year, -1.62 pct month on month; net profit margin was 5.66%, -4.81 pct year on year, -1.88 pct month on month. The company's balance ratio remained stable, at 34.58% as of the end of the third quarter of 2024, up 0.13pct from the end of 2023.

Electricity costs declined in the third quarter, but the price of alumina rose. Starting in 2024, the company changed the billing method for hydropower and aluminum in Sichuan. Previously, it was settled according to the annual average price, and adjusted to settle according to the dry water period (December-April), flat water period (May and November), and abundant water period (June-October). July, August, and September of the third quarter are all abundant periods. Electricity prices should normally be around 0.4 yuan/kilowatt hour, and electricity costs have dropped significantly compared to around 0.6 yuan/degree during the dry water period. However, the spot price of electrolytic aluminum fell 975 yuan/ton month-on-month in the third quarter. In addition, since the company did not have alumina production capacity, all alumina required for production came from outside sources, so the increase in alumina prices of about 300 yuan/ton month-on-month in the third quarter also affected the company's profits.

The company's shareholding ratio in Zhongfu Aluminum is expected to increase to 100%. The company announced in October 2024 that it intends to acquire 24% of Zhongfu Aluminum's shares held by shareholder Yulian Group. The purchase price is 1.254 billion yuan, which is 90% of Zhongfu Aluminum's 24% assessed value. After the acquisition is completed, the company's shareholding ratio in Zhongfu Aluminum will increase to 100%, and the equity production capacity of electrolytic aluminum will increase from 0.63 million tons to 0.75 million tons, and the company's performance is expected to rise to another level.

Risk warning: Demand for electrolytic aluminum falls short of expectations, leading to large fluctuations in aluminum prices; risk of widening price differences between internal and external markets of electrolytic aluminum; risk of lower processing costs for processed products due to intense market competition.

Investment advice: Lower profit forecasts and maintain the “better than the market” rating. The company's 2024-2026 revenue is expected to be 25.856/28.043/28.875 billion yuan, a year-on-year growth rate of 37.58%/8.46%/2.97%; net profit to mother is 1.049/1.411/1.781 billion yuan, year-on-year growth rate -9.54%/+34.59%/+26.16%; diluted EPS is 0.26/0.35/0.44 yuan, and current stock price is 11.4/8.5/6.7x. Considering that the company is a rare enterprise in the electrolytic aluminum industry that still has the ability to increase equity production capacity, it maintains a “superior to the market” rating.