Incidents:

On August 28, China Aluminum released its 2024 semi-annual report: in the first half of 2024, the company achieved operating income of 110.72 billion yuan, -17.4% year over year; net profit to mother 7.02 billion yuan, +105.4% year over year; net profit after deduction of 6.86 billion yuan to mother, +137.8% year over year.

On a quarterly basis, in the second quarter of 2024, the company achieved operating income of 61.76 billion yuan, +26.2% month-on-month, -8.9%; net profit to mother 4.79 billion yuan, +114.6% month-on-month, +198.5% year-on-year; net profit without deduction of 4.67 billion yuan to mother, +114.1% month-on-month and +266.8% year-on-year.

Investment highlights:

The increase in performance in the first half of the year was mainly due to a sharp increase in raw aluminum production, and large increases in aluminum prices and alumina prices. However, the decline in operating income was mainly due to a decline in trade volume.

Production and marketing: Production of aluminum, alumina, coal, and electricity have all increased. In the first half of 2024, the company achieved alumina output of 10.27 million tons, +1.58% of the same year; export sales of 3.19 million tons of self-produced metallurgical alumina, -7%; production of raw aluminum of 3.63 million tons, +18.63%; export sales volume of self-produced raw aluminum 3.59 million tons, +17.32%; coal production of 6.38 million tons, +2.57% year over year; sales volume of overseas power plants was 7.5 billion kilowatt-hours, +7.14% year over year. The production and sales volume of the company's major products has increased, and raw aluminum production has increased significantly.

On a quarterly basis, 2024Q2 achieved alumina production of 5.03 million tons, -4.0% month-on-month, +0.2% year-on-year, 1.69 million tons of self-produced metallurgical alumina sales, +12.7%, -5.1%; raw aluminum production of 1.85 million tons, +3.9% month-on-month, +20.9% year-on-year, and 1.83 million tons of self-produced raw aluminum, +23.6% year-on-year; coal production 3.5 million tons, +21.5 month-on-month , -0.6% YoY. As the resumption of production in Yunnan progresses, 2024Q2 raw aluminum production has further increased.

Revenue and profit: Profits of alumina and raw aluminum increased significantly. In the first half of 2024, the company's alumina sector achieved operating income of 31.45 billion yuan, +46.1% year-on-year, and total profit of 4.27 billion yuan, or +44.8% year-on-year, mainly due to increased alumina prices; the primary aluminum sector achieved operating income of 68.21 billion yuan, +20.5% year-on-year, and total actual profit of 7.6 billion yuan, or +96.2% year-on-year, mainly due to increased aluminum prices and a significant increase in production and sales; the marketing sector and the energy sector achieved total profit of 1.11 billion yuan respectively billion yuan and 9.3 billion yuan were +8.3% and -28.6%, respectively.

Debt and dividends: Adequate cash flow, reduced debt, 20% mid-term dividend. Net cash flow from the company's operating activities in the first half of 2024 reached 10 billion yuan, and monetary capital reached 25.8 billion yuan, an increase of 4.7 billion yuan over the end of 2023. As of June 30, the company's current liabilities were 54 billion yuan, a decrease of 4.7 billion yuan from the end of the previous year, mainly due to the repayment of short-term debt. As of June 30, the company's short-term loans were 3.87 billion yuan, a decrease of 4.1 billion yuan from the end of the previous year; the balance ratio fell 3.33 percentage points to 49.97% from the end of the previous year, reducing the balance ratio below 50% for the first time in nearly ten years. In addition, the company plans to pay an interim dividend, with a cash dividend of 0.082 yuan per share. The dividend ratio for the first half of the year is 20.05%, and the corresponding dividend rates for A shares and Hong Kong stocks are 1.2% and 1.8%, respectively (calculated at the closing price of August 28).

Profit forecast and valuation: The company's 2024-2026 revenue is estimated to be 225.6/236.9/245.4 billion yuan, and net profit to mother is 13.154/14.73/15.773 billion yuan, respectively, +96%/+7%; EPS is 0.77/0.86/0.92 yuan, respectively, corresponding to the current stock price PE of 8.92/7.97/7.44 times. The company is a leader in the domestic electrolytic aluminum industry. The advantages of industrial chain integration are obvious, and there will still be increases brought about by electrolytic aluminum, alumina and new energy projects in the future. The operation will continue to improve and maintain a “buy” rating.

Risk warning: (1) the risk of a sharp drop in the price of major products; (2) the risk of policy production restrictions; (3) the risk of production safety accidents; (4) the risk of construction projects not progressing as expected; (5) the risk that the data and information used in the research report are not updated in a timely manner.