Key points of investment:
Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 28.629 billion yuan, -10.91% year-on-year, and net profit of 4.103 billion yuan, -29.94% year-on-year. On a quarterly basis, 2023Q3 had quarterly revenue of 9.520 billion yuan, -9.22% year-on-year, -0.78%; net profit of the mother was 1,363 billion yuan, +3.14% year-on-year, and +14.25% month-on-month.
The resumption of production in Yunnan Shenhuo Q3 and low electricity costs during Yunnan's Fengshui period led to a month-on-month improvement in performance. Volume: Since June 18, Yunnan has resumed production one after another, and production has resumed in mid-August. We expect a month-on-month increase in production of about 40,000 tons in a single season. Price: 23Q3, the average price of smokeless coal refining vehicle boards in Yongcheng was 1,434.6 yuan/ton, +4.6%; the average price of electrolytic aluminum was 18,839.1 yuan/ton, +1.7%; the average price of alumina was 2,887.9, +0.9%; the average price of prebaked anodes in East China was 5,742.5 yuan/ton, -9.0%; the average price of electricity during the Yunnan Fengshui period was 0.33 yuan/kilowatt-hour, down 0.12 yuan/kilowatt-hour from the dry water period. Benefits: Q3 achieved gross profit of 2,627 billion yuan, +7.5% month-on-month, and gross margin of 27.6%, +2.1pct month-on-month.
The company attaches importance to optimizing financial expenses, and realized a shift in expenses to burdens in Q3. The cost for the Q3 period was 410 million yuan, -26.9% month-on-month. Among them, the reduction in R&D expenses and financial expenses was the main reason for the decrease in expenses. Q3 R&D expenses were 140 million yuan, -44.9% over the previous year, and financial expenses turned negative, to -0.7 billion yuan, -200% month-on-month.
Acquired minority shareholders' shares in Yunnan Shenhuo Aluminum Co., Ltd. As of 23Q3, the company has completed the acquisition of 14.85% of Yunnan Shenhuo's minority shareholders' shares, completed the relevant industrial and commercial change registration procedures, and increased its shareholding in Yunnan Shenhuo Aluminum Co., Ltd. from 43.40% to 58.25%.
Accelerate the deployment of downstream business and enter the battery foil fast track. In order to seize the development opportunities of battery aluminum foil, Shenlong Baoding Phase II of the 60,000-ton new energy power battery material production project is being accelerated. Currently, rolling mills have been installed one after another. It is expected that all 8 rolling mills will be commissioned in June 2024, and the company's aluminum foil production capacity will reach 140,000 tons after the second phase is put into operation.
Profit forecast and investment advice: Coal prices rebounded steadily in the second half of the year. We slightly raised the company's profit forecast. Net profit for 23-25 is estimated to be 55.36/66.39/7.590 billion yuan (previous value: 52.5/64.1/7.35 billion yuan). Using a segmented valuation method, the coal sector and aluminum sector were given 6.2 and 10.8 times PE, corresponding to the target price of 22.41 yuan and a “buy” rating.
Risk warning: Production capacity release falls short of expectations, downstream demand falls short of expectations, risk of fluctuations in raw material and energy prices