Overseas mergers and acquisitions "extension capacity" + self-expansion "expansion scale" to create a leader in the field of recycled aluminum: the company has been around the global layout of Malaysia, China and the United States for more than 20 years, vertically ploughing the field of recycling of aluminum resources to become an industry leader. "extension capacity": the company acquired Metalico in the United States in 2016 to realize the layout of the whole industry chain of scrapped automobile recycling and expand the source of waste aluminum in the upstream raw materials.

In 2021, the company plans to expand 1.3 million tons of aluminum alloy ingots in Malaysia. At present, the structure of the main plant has been completed, and the main production equipment has been entered one after another to further expand the scale of the company.

The industry supply is affected by the policy, the import volume is reduced, the competition pattern is scattered, and the leader benefits: 1) the scale of recycled aluminum production capacity continues to expand, which is indispensable as an important supplement to electrolytic aluminum. In 2022, the output of recycled aluminum in China increased steadily to 8.65 million tons (yoy+8%). Compared with the 4% year-on-year growth rate of electrolytic aluminum, recycled aluminum accounted for 22% of the output of electrolytic aluminum in 2022. The competition pattern is scattered, the market share of recycled aluminum CR6 is less than 30% in 2021, the investment and construction of recycled aluminum projects has been accelerated in the past three years, the market competition in raw materials and products has become more fierce, and the phenomenon of internal volume has occurred, and the small backward production capacity is expected to be further cleared, which is good for the leader. 2) due to policy restrictions, imports are reduced, and there is a broad space for demand to benefit from aluminum characteristics. Supply: from the point of view of the relationship between supply and demand, the main contradiction of the industry lies in supply, which is restricted by import policies in the short term, and the structure needs to be optimized urgently. Before 2018, import waste aluminum accounted for 40-50% of the trade war in 2018 to resume import tariffs. Recovery costs increased by 50%. The proportion of imports further declined after 2019, and the proportion of imported waste aluminum accounted for 17% in 2022, forming a "domestic-oriented, import supplement" pattern. The future production of recycled aluminum is expected to be 10% in 2022-2030CAGR. Recycled aluminum is expected to account for 40% of electrolytic aluminum in 2030. Demand: benefiting from a wide range of lightweight applications, such as construction, packaging, automotive, electronics and other fields, the current automotive demand for aluminum alloy has increased significantly, automotive engine, cylinder block, cylinder head and other castings have been fully aluminized, the average consumption of aluminum for new energy vehicles exceeds 225kg/ vehicles, and is optimistic about the development of new energy field in the future.

Sword refers to the upper reaches of the industrial chain, ahead of overseas layout of waste aluminum supply has significant advantages, the future can be expected:

1) Purchasing side: international + domestic linkage layout to expand upstream raw materials to improve supply flexibility. External: the company began to arrange foreign scrap aluminum procurement in 2002, which has been 20 + years. The external purchasing countries include China, the United States, Europe, Australia, Malaysia and so on, corresponding to the company's regional layout. Internal: the acquisition of Metalico in 2016 has expanded to western Pennsylvania and eastern Ohio, further upstream, increasing the supply capacity of scrap aluminum and extending downstream trading business, killing two birds with one stone. 2) sales end: aluminum alloy ingots are sold through various channels at home and abroad, and the waste is collected back to Central America for development. Sales of aluminum alloy ingots are mainly concentrated in China, Japan and Southeast Asia, and multi-channel sales at home and abroad are expected to maximize profits. In 2022, aluminum alloy ingots sold at home and abroad accounted for 57% and 43% respectively, and gross profit margins were Malaysia > other parts of Asia > Japan > China, respectively, which were 26%, 17%, 13%, 6%, respectively. With the expansion of production in Malaysia, profitability is expected to be further improved in the future.

Scrap sales are concentrated in the Americas, contributing a share of revenue that keeps pace with China and is growing rapidly. In 2022, the income of the Americas was 2.79 billion yuan, which was on a par with that of China, accounting for 36% of the revenue in the Americas. In 2016-2022, the CAGR of the Americas was 26%, growing rapidly. 3) Energy production end: it is expected to become the largest aluminum alloy ingot manufacturer in Asia. Taicang aluminum alloy ingot + Malaysia has an annual production capacity of 640000 tons in 2022. If the production capacity of 1.3 million tons is released in the future, it is expected to become the largest aluminum alloy ingot manufacturer in Asia.

Profit forecast and investment rating: we expect the company's EPS to be 0.2,0.4,0.5 yuan per share respectively from 2023 to 2025, and the corresponding PE is respectively times that of 13-8-6. Based on the company's leading position in the recycled aluminum industry, ahead of the layout of overseas future production capacity release is expected, for the first time to cover, given the "overweight" rating.

Risk tips: new project production is not as expected; market competition pattern intensifies; raw material prices fluctuate; commodity prices fluctuate; macroeconomic fluctuations lead to lower-than-expected sales.