Matters

The company released three quarterly reports for 2019, with revenue of 777 million yuan, down 0.36%, net profit of 76 million yuan, down 6.92%, and non-return net profit of 68 million yuan, an increase of 0.07%.

Of this total, the Q3 quarter revenue was 255 million yuan, down 12.79%; the net profit returned to the mother was 18 million yuan, down 34.22%; and the non-return net profit was 16 million yuan, down 41.66%. Q3 quarterly results were slightly lower than market expectations.

The decline in refiner sales may be the main reason why Q3 is not as good as expected.

The company achieved revenue of 255 million yuan in the third quarter, down 12.79% from the same period last year, and operating costs of 208 million yuan, down 11.86% from the same period last year. In the same period, China's aluminum production was 12.933 million tons, up 3.32% from the same period last year, down 1.93% from the previous year; aluminum exports were 1.39 million tons, down 10.32% from the same period last year. Under the background of weak macro-economy and Sino-US trade friction, the prosperity of the aluminum processing industry has declined, and the company's main aluminum grain refiner, as an aluminum processing additive, has also been affected, and it is speculated that the sales of refiner have declined, or the company's Q3 quarter results are not as good as expected.

The company and electrolytic aluminum industry to achieve a win-win situation, potassium tetrafluoroaluminate is expected to accelerate the promotion of the company's research and development of potassium tetrafluoroaluminate is expected to partially replace aluminum fluoride (electrolytic aluminum additive). In the production of electrolytic aluminum, 20 kg / ton of aluminum fluoride is generally added, and now 10 kg / ton of aluminum fluoride + 10 kg / ton of potassium fluoroaluminate is mixed, which can save 500 kilowatt-hours of electricity without increasing the cost (the price is equivalent to that of aluminum fluoride). According to the calculation of 0.31 yuan per kilowatt-hour, it can increase the profit of 155 yuan / ton for electrolytic aluminum enterprises. For electrolytic aluminum enterprises, the use of potassium tetrafluoroaluminate thickening profits is considerable, so potassium tetrafluoroaluminate has achieved a win-win situation between the company and the electrolytic aluminum industry, and its application in the electrolytic aluminum industry is expected to accelerate promotion.

The space for growth opens, and the company will usher in a new leap.

According to the estimated output of 36.48 million tons of electrolytic aluminum in China and 64.34 million tons of electrolytic aluminum worldwide in 2018, assuming that 10 kg / ton of electrolytic aluminum is added per ton, the market space will reach 365000 tons in China and 643000 tons in the world. From the current sales of potassium fluoroaluminate products, the promotion effect is remarkable. As an enterprise with raw materials, equipment, patents and other barriers, the company will take advantage of the east wind of the development of the industry and usher in a new leap.

Profit forecast and rating:

As the leader in the aluminum grain refiner industry, with the continuous expansion of the company's product scale and the accelerated promotion of by-product potassium tetrafluoroaluminate, it is estimated that the net profit from 2019 to 2021 will be RMB 3.01max 447 million, EPS 1.26max 2.19max 2.80 per share, corresponding to the closing price PE of 22x13x10X on October 29, 2019, maintaining the "overweight" rating.

Risk hint: the company's product production capacity releases the risk that it is not as expected, and the promotion progress of the new product potassium tetrafluoroaluminate is not as expected.