Key points of investment

The company released its 2024 semi-annual report. 2024H1 achieved revenue of 4.075 billion yuan, +15.4% year-on-year; realized net profit to mother of 0.12 billion yuan, -1.3% year-on-year. Looking at a single quarter, 2024Q2 achieved revenue of 2.21 billion yuan, +20.3% year-on-month, and +18.7% month-on-month; realized net profit to mother 0.059 billion yuan, -16.5% YoY, and -2.7%. The company's product sales price declined compared to the same period last year, which is the main reason for the year-on-year decline in performance.

The fall in 2024Q2 magnesium prices dragged down the company's performance

According to Wind, as of early August, the average price of magnesium ingots was 0.0194 million yuan/ton, and the average price of 2024Q2 magnesium ingots in China was 0.02 million yuan/ton, down 19.8% year on year and 4.5% month-on-month. The drop in magnesium prices affected the company's gross profit margin. The company's gross sales margin in 2024Q2 was 11.83%, down 1.39% year on year and 0.04% month on month. By product, the gross margin of magnesium alloy products in the first half of 2024 was 14.31%, down 0.11% year on year, the gross profit margin of magnesium alloy deep processing products was 13.43%, up 5.5% year on year, the gross margin of aluminum alloy products was 8.91%, up 5.0% year on year, and the gross profit margin of aluminum alloy deep processing products was 10.62%, up 0.63% year on year.

The company has signed a number of cooperation agreements, and the application field continues to expand

The company is actively expanding the application of magnesium alloys in the fields of automobiles, consumer electronics, building templates, magnesium hydrogen storage, and low-altitude economy. In January 2024, Baowu Magnesium signed a strategic cooperation agreement with Hydrogen Feng. The two sides cooperated on marketing of magnesium-based solid hydrogen storage equipment and implementation of application scenarios to accelerate the large-scale development of magnesium-based solid hydrogen storage equipment.

In March 2024, Chongqing Boao, a subsidiary of the company, signed an agreement with an automobile manufacturer to develop oversized magnesium alloy integrated die castings. Through strategic cooperation, we completed technical research throughout the process of small-batch production, and then mastered the core technology for the development of oversized magnesium alloy integrated die castings. In June 2024, the Nanjing Precision and LGE E2H automotive triple screen magnesium alloy die-casting project was put into operation. The project officially entered the mass production stage, promoting the lightweight transformation and upgrading of the automobile industry. On the same day, Baowu Magnesium and LG Electronics signed the “Magnesium Alloy Strategy Letter of Intent”.

The company's many projects are progressing steadily

The company has rich dolomite mineral resources and has built a complete industrial chain of “dolomite mining - raw magnesium smelting - magnesium alloy smelting - magnesium alloy precision casting, deformation processing - magnesium alloy recycling”. The company currently has 0.1 million tons of raw magnesium production capacity and 0.2 million tons of magnesium alloy production capacity. The company built 0.05 million tons of raw magnesium production capacity in Chaohu, 0.1 million tons of raw magnesium and 0.1 million tons of magnesium alloy in Gutai, and 0.3 million tons of magnesium alloy in Qingyang. The Chaohu Yunhai Expansion Project will be put into operation in the second half of 2024, and five Yunhai Expansion Projects are under construction. The Anhui Baomei light alloy project started thermal load testing on the magnesium production line on December 23, 2023. In addition, Gansu Baomei has begun construction of a project with an annual output of 0.3 million tons of high-quality ferrosilicon.

Profit forecasting

As the prices of magnesium ingots and magnesium alloys continue to be sluggish, we lowered the company's profit forecast. We expect the company's net profit to reach 0.36/0.66/0.96 billion yuan in 2024-2026, respectively, or +17.0%/+85.1%/+43.9% year-on-year. As a leader in the magnesium industry, the company is expected to advance steadily in the future with significant growth and maintain the company's “buy” rating.

Risk warning

Downstream demand fell short of expectations, the company's project progress fell short of expectations, and magnesium prices fluctuated greatly.