Incidents:
The company plans to issue convertible bonds and raise no more than 595 million yuan, which will be used for an aluminum intermediate alloy project with an annual output of 30,000 tons, a granular refiner project for aluminum grain refining and smelting, an engineering R&D center construction project, and supplementary liquidity.
Comments:
Performance fell short of expectations due to the decline in aluminum grain refiners. The economic downturn caused a decline in aluminum production. According to industry data, China's aluminum production in January-September 2019 was 368.39 million tons, a year-on-year decline of 6.6%; at the same time, aluminum exports fell by about 10% due to trade frictions. However, the company's aluminum grain refiner is an additive for the aluminum industry, so the decline in the company's aluminum grain refiner business drags down performance. The potassium tetrafluoroaluminate industry is advancing into a long-term process. Currently, it is still in the early stages of customer expansion and trial, accounting for a low share of revenue.
The company is leading the world in technology, and the market share of aluminum grain refining agents is expected to gradually increase. The quality of aluminum grain refining agents is determined by the process and core equipment. The company's technology and equipment R&D capabilities lead the world, and the product quality is superior to leading foreign companies. At the same time, the company is the only whole industry chain in the industry, and its cost advantage will further enhance competitiveness. The transfer of production capacity to Luoyang can effectively reduce company costs, and the market share of production companies will gradually increase as Luoyang's production capacity reaches production.
Potassium tetrafluoroaluminate will bring greater flexibility to the company's performance. The biggest pain point in the electrolytic aluminum industry is electricity consumption, which accounts for 40% of the cost. Potassium tetrafluoroaluminate can improve current efficiency by 2%, thereby saving electricity by at least 500 degrees per ton. The potential space for the industry in 2019 is 350,000 tons. The company has applied for a patent for the preparation of potassium tetrafluoroaluminate. At the same time, its raw material, potassium hexafluoroaluminate, is a by-product of aluminum grain refiner, and the company is the leading aluminum grain refiner, so both the patent and raw materials are in the hands of the company. Currently, potassium tetrafluoroaluminate is in the early stages of industrial development. Patience is needed. Once there is a breakthrough in the future, it will be reduced to bring greater flexibility to the company's performance.
Building an industrial ecosystem, high-purity hydrogen fluoride and SB powder are expected to create another new star. The company takes R&D innovation as its core driving force. First, it achieves the best in the industry in the field of aluminum grain refiners, then expands the industry based on this to build an ecosystem for the whole industry (aluminum grain refiner - PTFE - particle refiner - high purity hydrogen fluoride - SB powder). High-purity hydrogen fluoride and SB powder (further petroleum catalyst carriers) currently rely on imports. The company has already made a breakthrough in its current products. Considering market space, it is expected to create a new star once it matures.
Investment and rating: The company's potassium tetrafluoroaluminate has strong competitiveness and large market space, but it is in the early stages of industrial promotion, so more patience is needed. Based on the poor prosperity of the aluminum processing industry, and at the same time, potassium tetrafluoroaluminate is in the early stages of industry development. We lowered the company's 2019-2021 revenue to 1,192 million, 1,395 million and 1,696 million yuan, and net profit of 139 million, 177 million yuan and 230 million yuan. The current market value corresponding to PE is 29.8, 23.5 and 18.0 times, and downgraded to “Cautious Recommendation - A” rating.
Risk warning: The price of aluminum ingots fluctuates, and product promotion falls short of expectations.