Ping An's point of view:

An electrolytic aluminum company with outstanding integrated advantages. Since its establishment, the company has continued to deepen the layout of the aluminum industry chain, and has formed an upstream and downstream integration of R&D and manufacturing from bauxite and alumina to electrolytic aluminum, high-purity aluminum, and aluminum foil. Bauxite: The company has bauxite resources in Guangxi, and is actively promoting the processing of a mining license for this resource; in Guinea, it has completed the share acquisition of a local mining company and obtained exclusive purchase rights for its bauxite products, and has a production capacity of about 6 million tons/year for the production and transportation of bauxite; in addition, the company has obtained three bauxite mining rights in Indonesia, and the mine side self-sufficiency rate will further increase. Alumina: The company currently has 2.5 million tons of alumina production capacity in Jingxi Tiangui; Indonesia plans to build a 2 million ton alumina production line. Electricity and accessories: The company is equipped with 6 350MW self-owned generators, which can meet the electricity demand of 80%-90% of its own electrolytic aluminum production; at the same time, it also has 0.3 million tons of pre-baked anode carbon production capacity each in Shihezi and Aral, southern Xinjiang, to achieve complete self-supply.

Electrolytic aluminum: The company has built 1.2 million tons of electrolytic aluminum production capacity and is located in the national Shihezi Economic and Technological Development Zone. The cost advantage is remarkable under the integrated layout.

Expanding downstream, the aluminum deep processing industry opens up room for growth. The company's downstream products mainly focus on high-purity aluminum and aluminum foil. At present, 0.06 million tons of high-purity aluminum production capacity has been built, with a production capacity of 0.045 million tons of products that can produce 4N6 or more. The aluminum foil sector plans a Jiangyin aluminum foil deep processing capacity of 0.22 million tons/year to support the 0.3 million tons/year Shihezi billet production line. The first phase of the production capacity of 0.15 million tons is climbing. Due to the high integration of upstream and downstream of the industrial chain, the production cost of deep-processing products has been reduced, and the integrated layout of the industrial chain and leading core technology have created the company's competitive advantage in technology and cost.

Demand for electrolytic aluminum has been released elastically, and supply rigidity has accelerated. According to SMM, the annual operating capacity of domestic electrolytic aluminum reached 43.51 million tons in September 2024, which is already close to the maximum production capacity; in the next few years, overseas production capacity to resume production of electrolytic aluminum will be about 1 million tons per year, and the overall growth rate of overseas electrolytic aluminum production capacity will increase steadily. Demand in the new energy sector, represented by photovoltaics and new energy vehicles, will continue to lead the growth in demand for electrolytic aluminum. Furthermore, as countercyclical policies gradually gain strength, the drag on domestic aluminum demand from real estate terminals is expected to gradually decrease, and the elasticity of aluminum demand is expected to gradually release.

Aluminum prices are being reshaped upward, and valuation premiums for integrated aluminum companies are gradually showing. Judging from historical performance, the aluminum industry index shows a strong correlation with the profit of electrolytic aluminum. Among them, the improvement in electrolytic aluminum profit, which is dominated by aluminum prices, corresponds to stronger industry index flexibility. As production capacity bottlenecks gradually become prominent, and the aluminum supply and demand pattern may be tightened over a long period of time, the value of electrolytic aluminum is expected to be revalued upward, and the profits and valuations of aluminum companies are expected to improve at the same time. In this context, integrated electrolytic aluminum production capacity has stronger supply stability and cost control capabilities, and is expected to enjoy higher profit flexibility and valuation levels.

Profit forecasts and investment suggestions:

At the industry level, the growth rate of demand for industrial aluminum profiles is expected to remain high, driven by the new energy sector; demand for aluminum in the infrastructure and real estate sector is expected to pick up at an accelerated pace after the implementation of domestic policies.

Overseas, US re-industrialization is driving demand for aluminum to a certain extent, and it is expected that the elasticity of global aluminum demand will gradually unleash. On the supply side, the rigidity of domestic and overseas aluminum supply is gradually becoming prominent, and aluminum prices may enter a long-term boom channel.

As industry sentiment increases, the company's performance is expected to continue to grow. The company's revenue for 2024-2026 is estimated to be 31.636, 33.837, 35.623 billion yuan, and net profit to mother of 4.11, 5.02, and 5.73 billion yuan. The corresponding PE was 9.5, 7.7, and 6.8 times, and the first coverage gave a “recommended” rating.

Risk warning:

1. The increase in supply greatly exceeded expectations and was released. If the increase in overseas electrolytic aluminum supply significantly exceeds expectations, aluminum prices are at risk of falling.

2. Downstream demand falls short of expectations. If demand growth in terminal sectors such as the new energy sector slows down, aluminum prices are at risk of falling.

3. The emergence of alternative technologies and products. If relevant alternative technologies and products appear in the short term, it may have a big impact on the long-term demand for aluminum, which in turn will have an impact on the company's performance.