Incident: In 2023, the company achieved revenue of 225.071 billion yuan, a year-on-year decrease of 22.65%; realized net profit to mother of 6.717 billion yuan, an increase of 60.23% over the previous year. In Q4 '23, the company achieved operating income of 36.666 billion yuan, a year-on-year decrease of 42% and a decrease of 33% month-on-month; realized net profit of 1,364 billion yuan, an increase of 213% year-on-year and a decrease of 30% month-on-month.
Stable production and excellent production of the main products. Alumina production in '23 was 16.67 million tons, down 5.5% year on year; export sales were 6.52 million tons, up 24.67% year on year; raw aluminum production was 6.79 million tons, down 1.3% year on year, and sales volume was 6.8 million tons, down 0.7% month on month, mainly due to a decrease in production capacity of Yunlu. Coal production was 13.05 million tons, an increase of 21.5% over the previous month.
The profit of electrolytic aluminum increased, and the profit of alumina compressed. In terms of profit, the unit price of electrolytic aluminum decreased by 8.8% year on year, and the price per ton was 18,428 yuan/ton. However, under the decline in coal prices and anode prices, the cost reduction exceeded the selling price. The cost per ton was 1,6019 yuan/ton, down 9.1% year on year. As a result, the gross profit margin of electrolytic aluminum products in '23 was 13.20%, an increase of 0.42pct over the previous year. The gross margin of alumina decreased by 6.67 pct to 10.85% due to lower selling prices and increased costs.
Backward production capacity has been phased out, and the drag on asset impairment has gradually lessened. In recent years, due to the restructuring of the company's industrial structure, the elimination of backward production capacity, asset accrual impairment has been significant. The company's asset impairment loss in '23 was 755 million yuan, a significant decrease from 4.884 billion yuan in '22. The quality of the company's assets was further optimized, and asset impairment gradually reduced the drag on performance.
Key projects were constructed and put into operation in an orderly manner. The Inner Mongolia Huayun Phase III 420,000 ton light alloy material project is expected to be electrified in May '24, the Qinghai Branch's 500,000 ton electrolytic aluminum project is expected to be put into operation in June '25, and the Guangxi Huasheng Phase II 2 million tonne alumina project is expected to be put into operation in '25. After the above project is put into operation, it will increase the production and sales volume of the company's two main businesses: electrolytic aluminum and alumina.
Improved ability to guarantee resources. The company strives to strengthen resource security and carry out special actions to obtain bauxite resources, adding 21 million tons of domestic bauxite resources in 2023. Currently, the company has a total of 2.3 billion tons of bauxite resources, with reserves of 270 million tons, and an annual output of 29.125 million tons. Based on the ratio of bauxite to alumina, the company currently has a bauxite self-sufficiency rate of 64.7%; at the same time, the company has broadened bauxite supply channels, and international trade has increased year-on-year.
In addition, Ningxia Energy obtained 271 million tons of additional coal resources.
Aluminum: There are profound changes on both the supply and demand sides, and the “resource-like” attributes of electrolytic aluminum will gradually become apparent. 2024 is the “year of change” in the true sense of the word electrolytic aluminum:
1) On the supply side, the domestic power supply conflict for electrolytic aluminum is not only about hydropower, but also depends on wind and solar energy storage. Electricity supply is naturally “vulnerable”; in the process of energy system transformation and new energy construction, traditional energy seriously reduces capital expenditure and raw material competition, which will eventually lead to a shortage of petroleum coke, another raw material for the production of electrolytic aluminum, a by-product of petroleum refining and chemical processing, and will have a more profound impact on global electrolytic aluminum production in the medium to long term.
2) On the demand side, in the context of domestic building security and countercyclical adjustment, traditional demand drag will slow down.
Demand for new energy sources (NEVs, photovoltaics, etc.) will drive a trend rebound in demand for electrolytic aluminum, and the overall impact is showing. Demand for aluminum electrolyte, the green metal, cannot be overly pessimistic — the average annual demand growth rate is likely to remain 2-3%.
3) At present, domestic electrolytic aluminum is characterized by low inventory and high capacity utilization, and new supply will be heavily dependent on future new overseas production capacity. Under the new overseas capital cycle, the industry's capital expenditure costs and cycle will be greatly increased and lengthened, which will cause the price center of electrolytic aluminum to rise to 25,000 yuan/ton.
We judge that the electrolytic aluminum industry chain is booming or showing a spiral rise. As prices are reshaped, the “resource-like” attributes of the electrolytic aluminum industry will also be re-understood.
Profit forecast and investment suggestions: We lowered the 2024/2025/2026 aluminum price assumption to be 2.1/2.3/25,000 yuan/ton (the previous value of 2024/2025 aluminum price assumed to be 23/25,000 yuan/ton), and the company's net profit for 2024/2025/2026 was 108/146/214 billion yuan, respectively (the value before 2024/2025 was 121/161 billion yuan), corresponding PE was 11.5/8.5/5.8 times, respectively, maintaining the company's “buy” rating.
Risk warning: There is a risk that commodity prices will fluctuate, project construction will fall short of expectations, peer competition will fall short of expectations, and public data used in research reports will not be updated in a timely manner.