The integration of resources has been completed to create a complete industrial chain. Since its establishment in 1998, the company has been deeply involved in the field of intermediate alloys and was listed on the Shenzhen Stock Exchange in 2015. With the continuous injection of aluminum alloy wheels and recycled casting alloy businesses in 2018 and 2020, the company formed a pattern where the three main businesses went hand in hand. In July 2021, the company announced investment in the construction of new lithium battery material projects to further enter the new energy field, form the company's “3+1" business pattern, and develop upstream and downstream collaboratively.
The three core businesses have gone hand in hand, and are currently in leading positions in industry segments. 1) Foundry aluminum alloys: The company has the highest market share of recycled casting aluminum alloys, and the amount of recycled aluminum used is increasing year by year. In 2022, the company's recycled aluminum resource procurement volume reached 566,300 tons, while actively planning production capacity according to market layout and customer needs. It is estimated that the company's casting aluminum alloy production capacity will gradually increase from the current 1.6 million tons to 1.82 million tons; in addition, the company has successfully developed heat-free treatment alloys, breaking foreign technology monopolies, and actively promoting the regeneration of heat-treated alloys. 2) Aluminum alloy wheels: The company has the highest production capacity. By the end of 2022, the company has a production capacity of 20 million aluminum alloy wheels. In order to further meet continuously growing order demand, the company added 3.6 million Mexican production capacity to start production by the end of 23, and the production capacity of 1.5 million in Baotou will be put into production by the end of 24. 3) Intermediate alloys: The second and third phases of the Baotou aluminum-based rare earth intermediate alloy project with an annual output of 50,000 tons have been released one after another, and production capacity will increase to 140,000 tons. In addition, aerospace special intermediate alloys are being released rapidly, and the overall profit level is expected to increase significantly in the future.
New lithium battery material projects are about to be released, opening up the company's second growth curve. The new lithium battery materials project is an important part of the company's integrated industrial chain. The project can guarantee the stable quality and supply of key raw materials for intermediate alloys. The first phase of the project covers 10,000 tons of lithium hexafluorophosphate (LiPF6), 12,000 tons of fluoride salts such as potassium fluorotitanate, potassium fluorozirconate, potassium fluoroborate, etc., and 12,000 tons of other fluoride products. Currently, the project is about to be completed and put into production.
Profit forecast and investment recommendations: We expect the company's net profit from 2023-2025 to be 6.0/9.2/1.12 billion yuan, respectively, and the corresponding EPS is 0.96/1.47/1.79 yuan/share. Shunbo Alloy, Yongmaotai, Wanfeng Aowei, Baowu Magnesium, and Wencan Co., Ltd. were selected as comparable companies. Based on the closing price of November 21, 2023, the comparable company's predicted PE average for 2023-2025 was 32/15/11 times, respectively. Considering that the company's three major businesses, new functional intermediate alloy materials, cast aluminum alloy materials, and aluminum alloy wheel products, the company was given a 20-fold valuation in 2024. The corresponding target price was 29.48 yuan, coverage for the first time, and the company was given a “buy” rating.
Risk warning: Project commissioning falls short of expectations, sharp fluctuations in aluminum prices, and deterioration of the competitive landscape in the industry