Incident: In the first three quarters of 2024, the company achieved operating income of 6.347 billion yuan, a year-on-year increase of 14.09%; realized net profit to mother of 0.154 billion yuan, a year-on-year decrease of 25.88%. Among them, Q3 achieved operating income of 2.271 billion yuan, up 11.86% year on year and 2.68% month on month; realized net profit to mother of 0.034 billion yuan, down 60.55% year on year and 42.49% month on month.

The continued slump in magnesium prices affected the company's performance. Due to factors such as insufficient downstream demand, magnesium prices continued to be sluggish in the third quarter from the beginning to date. As of October 25, the average price of magnesium ingots in 2024 (Wenxi) was 18657.44 yuan/ton, down 17.22% from the same period last year. Magnesium prices are close to the full cost line of the industry.

Low magnesium prices had a big impact on the company's overall profit in the first three quarters, but with factors such as complete self-sufficiency in ore, the company had a significant production cost advantage. The company's gross profit for magnesium alloy products was still 14.31% in the first half of the year.

The Qingyang project progressed steadily, and downstream applications continued to expand. On September 5, Tunnel No. 3 of the Anhui Baomeg Mining Products Transportation Corridor Project was successfully completed. At this point, the 4 mountain tunnels of the Corridor Project Tunnel Project have been fully completed. As the project is gradually completed and put into operation, the company's sales at the dolomite end will become a new profit growth point for the company in the future. On July 3, the company and Suzhou Huichuan Power jointly released a magnesium alloy lightweight electric drive assembly, which is expected to become an important growth point for the use of magnesium alloy vehicles in the future. Advantages such as low magnesium price and weight reduction of magnesium alloys are expected to accelerate the penetration rate of downstream magnesium applications.

Investment advice: With the gradual commissioning of Qingyang, Chaohu Phase II, and Wutai Phase II projects, the company's raw magnesium and deep processing production capacity is expected to increase dramatically. Considering that magnesium prices continue to be low this year, and the company is actively adjusting the pace of releasing new production capacity, we lowered the company's profit forecast. The company's 2024-2026 revenue is estimated to be 8.387/12.314/21.733 billion yuan, respectively; net profit to mother is 2.03/6.26/10.07 yuan; and EPS is 0.29/0.88/1.42 yuan/share, respectively. Maintain the company's “buy” rating.

Risk warning: magnesium prices fall, downstream falls short of expectations