Event: the company recently released its 2020 interim results report.
Main points of investment:
Tianchi Energy contributed investment income, and the company's profits increased significantly. In the first half of 2020, the company achieved an operating income of 2.347 billion yuan, an increase of 4.19% over the same period last year, a net profit of 134 million yuan belonging to shareholders of listed companies, an increase of 47.92% over the same period last year, and a net profit of 105 million yuan after deducting non-recurrent profits and losses belonging to shareholders of listed companies, an increase of 109.73% over the same period last year. Net cash flow of operating activities reached 144 million yuan, an increase of 18.03% over the same period last year The basic earnings per share was 0.13 yuan, and the performance was better than expected. In the second quarter of 2020, the company achieved operating income of 1.428 billion yuan, an increase of 31.91% over the same period last year, a profit of 70 million yuan for shareholders belonging to the parent company, an increase of 48.31% over the same period last year, and a net profit of 65 million yuan after deducting non-recurring profits and losses, an increase of 281.03% over the same period last year. The sharp increase in the company's net profit in the first half of the year was mainly due to investment income. Tianchi Energy contributed 84.16 million yuan to the company's investment income in the first half of the year, an increase of 82.46% over the same period last year. In addition, when the gross profit margin decreased slightly by 0.57 percentage points, the company's sales expenses (- 15.54%), research and development expenses (- 35.10%) and financial expenses (- 7.8%) were well controlled, thus increasing the net profit margin by 1.73 percentage points.
The company's aluminum products have a wide range of applications, and the downstream medium-and long-term demand is good. The company's main products include high purity aluminum, electronic aluminum foil and electrode foil and other high performance aluminum alloy products. (1) High purity aluminum is mainly used in electronic aluminum foil, electronic guide wire, high purity aluminum oxide powder, aviation aluminum alloy, target and other fields such as electronics, aerospace, integrated circuits, etc. (2) electronic aluminum foil is mainly used in the production of electrode foil, electrode foil is mainly used in the production of aluminum electrolytic capacitors. (3) High performance aluminum alloy is mainly used in electronic consumer goods, energy-saving wires, automobile engines, automobile decoration, architectural decoration and other electronic, electric power, transportation, construction related fields.
The scale effect of the company is obvious, and the customer resources are high quality. The company is one of the largest R & D and production bases of electronic aluminum foil for high purity aluminum and capacitors in the world. The company has a strong large-scale production and supply capacity, can effectively achieve economies of scale and reduce production and operating costs.
The company has a complete "energy-high purity aluminum-electronic aluminum foil-electrode foil" electronic new materials circular economy industry chain. With excellent product quality and high-quality customer service, the company's high-purity aluminum and electronic aluminum foil products have successfully occupied the domestic leading position and greatly opened up the international market, with a stable customer base and a certain pricing initiative. As downstream customers have very strict quality requirements for electronic materials and high-purity aluminum materials, they need a long development cycle and certification cycle, and suppliers are usually not easily changed once determined. Through long-term investigation and cooperation, the company has established close cooperative relations with many international and domestic well-known manufacturers, such as Gui Migong, Nijikang, Panasonic, Sanyo, Lilong Electronics, Taiwan Jinshan and Gree Electric Appliances, as well as Aili Aluminum, Aerospace Science and Technology, and Beijing Institute of Aeronautical Materials of AVIC.
The company will raise more funds to improve its asset structure, which will help to increase the production capacity of aluminum foil products. In July 2019, the company issued 172360406 additional shares at a price of 4.36 yuan per share, raising 751 million yuan, of which the major shareholder special electrician participated in 368 million, and the shareholding increased by 3.53 percentage points to 30.85%. Raise funds for the construction of high-performance high-pressure foil project with an annual output of 15 million square meters (625 million yuan), high-performance high-pressure corrosion foil project with an annual output of 15 million square meters (471 million yuan) and repayment of bank loans (125 million yuan). On the one hand, the fixed increase in fund-raising will greatly increase the company's net assets, decrease the asset-liability ratio, improve the company's asset quality, significantly improve its debt-paying ability, improve its financing ability, and make its asset structure more reasonable. The corroded foil project plans to build 20 new high-pressure corrosion production lines with an investment period of 2 years and is expected to reach 70% in the third year. The high-voltage foil forming project plans to build 80 new foil production lines, which were originally planned to be completed and put into production in June 2020. at present, 38 production lines have been completed, 20 have been put into production in November 2019, and another 18 are being debugged and running. Due to the recent decline in the price of high-pressure foil, the company plans to extend the construction period of the project to June 2022 in order to reduce investment risk.
The downstream demand of the company recovers quickly, and high-end products benefit from domestic substitution. In 2019, the added value of the above-scale electronic information manufacturing industry increased by 9.3% compared with the same period last year; affected by the epidemic, the growth rate in the first seven months of 2020 was 6.7%, and the growth rate increased month by month. With the application of new technologies in global electronic products, household electronic products such as new energy vehicles, charging piles, automotive electronics, frequency conversion air conditioners, refrigerators and industrial energy-saving equipment will show a good development trend, and the demand for products will increase gradually. it is beneficial to the development of aluminum electrolytic capacitor industry, and it will also bring greater development opportunities for aluminum foil materials for aluminum electrolytic capacitors. High-performance aluminum alloy is widely used in transportation, construction, electric power, electronics, packaging and other fields, and has a broad application prospect. Coupled with the urgent need for localization of some highly processed products in China, the company is the only enterprise in China that has the production capacity of combined purification of ultra-high purity aluminum (99.999%) and high purification smelting and casting. The company's target raw materials are mainly used in semiconductors and display panels. There will be market opportunities for domestic substitutes in the future.
Profit forecast and valuation: it is expected that the fully diluted EPS of the company in 2020-2022 will be 0.24,0.27,0.30 yuan respectively, calculated according to the closing price of 5.82yuan on August 18, the corresponding PE is 24.2times, 21.8times and 19.4times, respectively. Considering that the company is in the leading level in the field of high purity aluminum in China, and the product application prospect is broad, the company is given the investment rating of "increasing its holdings" for the first time.
Risk tips: (1) downstream demand is lower than expected; (2) the company's project progress is not as expected.