[Research Report Summary]
Product development and customer expansion in emerging fields are being effectively promoted, and government subsidies and financial management revenue contributed to annual results higher than expected: the company's current performance range is higher than our three-quarter report review's expectations of 0.92 billion yuan for the whole year. The main reasons are: 1) effective transformation of R&D in emerging application fields, steady increase in profitability, optimization of the company's product structure with high added value products such as aluminum foil for lithium batteries and aluminum for automobiles, and the profit margin level is further improving; 2) Demand in emerging fields is strong. With the further implementation of environmental protection policies and plastic restriction orders, new energy Orders in the fields of automobiles, green consumption, transportation, etc. continued to grow. Annual sales of aluminum sheets and foil were about 0.98 million tons, an increase of about 14%; 3) The contribution of government subsidies and financial management revenue was higher than expected. The current stock price has valuation advantages: 1) As the most widely used non-ferrous metal, the company has abundant reserves and is relatively easy to mine, and its periodicity is far weaker than other varieties; 2) In terms of business model, as a leading aluminum processing enterprise, the company uses “aluminum ingot price+processing fee” pricing, and the company's processing profit margin level is above 20% after excluding raw materials; 3) The company's current gross profit per ton of aluminum has increased 1.8 times compared to 2012; 4) The company's interest-bearing debt is only converted into debt. The exchange price of 11.2 yuan is lower than the current share price. The main projects under construction have come to an end, and operating cash flow has improved dramatically. In summary, it is more realistic to position the company as a “growing aluminum processing enterprise”. The current PE valuation of about 10 times does not effectively reflect this perception. Looking forward to the future, we believe that the company's valuation increase comes from, 1) The company's current business structure is mainly based on traditional aluminum plate and foil commodities; the transportation aluminum sector accounts for only 3.6% of revenue, with a net profit margin of 13.9%, far higher than the consolidated level of 5.1%. At the end of 2020, an employee capital increase was introduced to invest 12.08%. Independent development and high-end positioning are more clear, product structure optimization, and contribution to emerging fields. The overall gross margin is expected to continue to increase; 2) The company continues to increase 5G filter covers, rail bodies, high-strength automotive aluminum alloys, R&D investment in aluminum for high-performance molds, high-strength bottle caps, pattern boards, charging piles, aluminum for new energy vehicles, aluminum for automobile battery cases, etc. Since 2012, R&D expenditure has increased from less than 0.5% to about 3%. R&D investment has driven product structure improvements. The company's aluminum production and sales increased 1.8 times and revenue increased 1.7 times from 12 to 19. The average price of corresponding products fell only 2.5%, far lower than the 11.6% drop in the price of SHFE aluminum. R&D and product development capabilities provide capacity support for continuous growth.
Profit forecast and investment advice: The company's production and sales volume is growing steadily, product structure is optimized, and gross margin expectations continue to rise. The company's net profit is expected to be 1.07/1.27/1.44 billion yuan in 20-22. Without considering share conversion factors, the corresponding PE is 9.1/7.7/6.8 times, maintaining a “gain” rating.
Risk factors: Product structure upgrades fall short of expectations, lower processing costs, and lower production and sales.