Report summary

Incident: In the first three quarters of 2024, the company achieved operating income of 16.733 billion yuan, +22.65% year over year; net profit to mother of 0.727 billion yuan, -8.37% year over year. In Q3 '24, the company achieved operating income of 5.739 billion yuan, -1.26% month-on-month, +15.74% year-on-year; net profit to mother of 0.284 billion yuan, -25.25% year-on-year and -28.99% month-on-month.

Q3 The gap between the purchase and sale of electrolytic aluminum narrowed, and profits shrunk. Compared with the second quarter in the third quarter of 2024, the price of electrolytic aluminum decreased by 5% month-on-month, the price of alumina increased by 8% month-on-month, and the gap between purchases and sales narrowed. Under this industry situation, the company first uses favorable electricity prices (0.43 yuan/degree) during the abundant water period in the Guangyuan region to reduce energy consumption prices and increase profitability; the second is to strengthen communication with relevant parties to improve the stability of energy supply and ensure the high capacity utilization rate of the electrolytic aluminum business. In the third quarter of 2024, the company achieved an electrolytic aluminum production of 0.1829 million tons; in the first three quarters of 2024, the company achieved a total production of 0.5482 million tons of electrolytic aluminum.

The aluminum deep processing business is increasing overseas market development. Faced with changes in demand for low-carbon products, such as EU carbon border tariffs, the company leveraged the advantages of green hydropower aluminum to speed up the development of “high proportion of recycled aluminum in products” and renewable energy applications, and the carbon footprint of products has dropped dramatically. The company increased domestic and foreign market development. In the third quarter of 2024, the company achieved sales volume of 0.1574 million tons of aluminum, an increase of 19.78% over the previous year; of these, export sales were 0.1013 million tons, an increase of 83.15% over the previous year. In the first three quarters of 2024, the company's cumulative sales volume for deep processing of aluminum was 0.4729 million tons, up 36.05% year on year; of these, export sales were 0.3029 million tons, up 88.04% year on year. In terms of the recycled aluminum business, the first phase of the company's 0.5 million tons of aluminum recycling project with an annual output of 0.15 million tons of UBC alloy liquid has entered the trial operation stage, and products are being provided to the company's aluminum deep processing project.

Electrolytic aluminum production capacity realizes 100% equity. On October 11, 2024, the company announced its intention to acquire 24% of Zhongfu Aluminum's shares held by shareholder Yulian Group, at a purchase price of 1.254 billion yuan. 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, achieving 100% equity.

The supply and demand pattern has been reshaped, and resource attributes have been re-evaluated, and the long-term boom will continue. On the supply side, 1) With the increase in the dependence and concentration of bauxite imports and restrictions on transportation capacity, bauxite is no longer an absolute surplus resource, and its resource value is undergoing revaluation; 2) Domestic production capacity of electrolytic aluminum is close to the ceiling. Overseas growth is limited and costs are high, and the “resource-like” nature of the electrolytic aluminum process is prominent. On the demand side, against the backdrop of continued strength in domestic countercyclical adjustment, the drag on traditional demand will slow down. Demand for new energy sources (new energy vehicles, photovoltaics, etc.) will drive a trend rebound in demand for electrolytic aluminum. The overall impact is constantly showing, and the demand growth rate is about 2-3%. We judge that the electrolytic aluminum industry chain is either booming or showing a spiral rise. With profound changes on both the supply and demand sides, the entire aluminum industry chain is undergoing price reshaping due to a revaluation of resource attributes.

Profit forecast and investment advice: We assume 2.0/2.2/2.3 (previous value 2.3/2.5/-) 10,000 yuan/ton for aluminum prices in 2024/2025/2026. The company's net profit for 2024/2025/2026 is 10/16/20 (previous value 20/23/-) billion yuan, respectively. The corresponding PE is 12.4/8.0/6.4 times, respectively, maintaining the company's “buy” rating.

Risk warning: Commodity price fluctuations, project construction falling short of expectations, risk of deviations in industry scale estimates, and risks of untimely updates to public data used in research reports.