1H23's performance met our expectations
The company announced its results. 1H23 achieved revenue of 14.501 billion yuan, -19.04% year-on-year; net profit of 1,313 billion yuan, -28.08% of the same period; net profit of 1,279 million yuan after deducting non-return net profit of 1,279 billion yuan, -28.90% year-on-year.
2Q23 achieved revenue of 7.666 billion yuan, -15.32% year-on-year, +12.17% month-on-month; net profit of 794 million yuan, -28.06 million yuan, and +53.03% month-on-month. The 1H23 results were in line with our expectations.
Development trends
It is expected that high-end products will continue to expand, and the share of business will continue to increase. The company focuses on developing high-value-added products represented by automobile panels, aviation boards, and power battery foils. The gross profit of 1H23 high-end products accounts for 29% of the total gross profit of aluminum products, +8ppt compared to the same period last year. Looking forward to the future, production capacity for aluminum automotive panels is expected to accelerate expansion and release. The company expects production capacity to double to 400,000 tons in 2024, and plans 700,000 tons of annual production capacity in the long term. According to the announcement, demand for aluminum automotive panels is growing rapidly and technical barriers are high. As the first batch supplier of interior and exterior panels for passenger cars in China, Nanshan Aluminum is currently producing 200,000 tons/year with a production capacity of 200,000 tons/year. The company expects to build 200,000 tons/year and put into operation in 2024. In addition, according to market demand, the company plans to convert production to 300,000 tons/year through the existing tank production line, and the total production capacity is expected to expand to 700,000 tons/year.
Second, the global aviation industry is recovering, and mass production of large domestic aircraft is expected to help increase demand for aviation aluminum. The company is the only domestic enterprise that also supplies aviation materials to world-renowned OEMs such as Boeing, Airbus, and COMAC. With the recovery of the overseas aviation industry and the acceleration of mass production of large aircraft, we expect the company's 50,000 ton aviation board production capacity to continue to expand in the future, and the profit share of the company's high-end products will further increase.
Third, battery foil production capacity continues to be released, targeting the high-end market. The company has built a 21,000-ton special battery foil production line and has become a core supplier for well-known customers such as Ningde Times and Bank of China Innovation. In the future, the company aims to develop high-performance power battery foils in the high-end market.
The domestic focus is shifting to deep processing, and the overseas integration layout is advancing at an accelerated pace. From a domestic perspective, the company strategically abandoned upstream high-cost electrolytic aluminum production capacity, further focused on downstream deep processing, and transferred 336,000 tons of electrolytic aluminum in the first half of the year. Currently, the company has an upstream alumina production capacity of 1.7 million tons and an electrolytic aluminum production capacity of 480,000 tons. Looking overseas, the company's annual alumina production capacity of 2 million tons invested and built in Indonesia's Bintan Industrial Park was fully put into operation in October 2022. The company announced further plans to build 250,000 tons of electrolytic aluminum and 260,000 tons of carbon projects per year, continue to extend the industrial chain and improve the upstream integration layout. The company expects construction of the project to be completed in 2026.
Profit forecasting and valuation
We keep our profit forecast for 2023/2024 unchanged, and the current stock price corresponds to the price-earnings ratio of 9.3 times/9.0 times 2023/2024. We maintained our outperforming industry rating and maintained a target price of 4.19 yuan, corresponding to the price-earnings ratio of 12.7/12.3 times 2023/2024, with 36.5% upside from the current stock price.
risks
Aluminum prices fluctuated greatly; project commissioning fell short of expectations; downstream demand recovery fell short of expectations.