NANSHAN ALUMINIUM(600219)：SALES VOLUME OF HIGH-END PRODUCTS KEEPS GROWING;GLOBAL EXPANSION ACCELERATES

　　2022 and 1Q23 earnings in line with our expectations
　　Nanshan Aluminium announced its 2022 results: In 2022, the firm’s revenue rose 21.68% YoY to Rmb34.95bn, net profit attributable to shareholders grew 3.07% YoY to Rmb3.52bn, and recurring net profit rose 14.63% YoY to Rmb3.83bn. In 4Q22, the firm’s revenue rose 1.0% YoY but fell 2.3% QoQ to Rmb8.42bn, its net profit attributable to shareholders declined 25.2% YoY and 34.8% QoQ to Rmb0.67bn. The firm’s 2022 earnings were in line with our expectation. The firm’s earnings grew in full-year 2022 mainly due to rising ASP of aluminum ingots and production capacity from the 2mnt alumina project in Indonesia.
　　The firm also announced its 1Q23 results: Revenue fell 22.8% YoY and 18.9% QoQ to Rmb6.83bn. Net profit attributable to shareholders fell 28.1% YoY and 22.2% QoQ to Rmb519mn, in line with our expectation. The firm’s earnings declined in 1Q23 mainly due to falling demand and declining aluminum price.
　　Trends to watch
　　Sales volume of high-end products to keep rising; such products to account for growing share in profit. The firm focuses on developing high value-added products such as aluminum sheet products for automobiles and aviation. The gross profit of high-end products accounted for 21.16% of the firm’s total gross profit from aluminum products in 2022 （up 1.27ppt YoY）。 Looking ahead, we expect the expansion and ramp-up of the firm’s production capacity for automotive aluminum sheet products to accelerate. The firm expects its production capacity for such products to be 0.4mnt/year in 2024 and it plans to increase the production capacity to 0.7mnt/year in the long term. According to the firm, demand for automotive aluminum sheets is growing rapidly and technological barriers to entry for such products are high.
　　As the first large-scale supplier of interior and exterior aluminum sheets for passenger vehicles in China, the firm currently has 0.2mnt/year of production capacity in operation and it expects its 0.2mnt/year newly-built production capacity to be put into operation in 2024. In addition, based on market demand, we think the firm could convert 0.3mnt/year of its existing aluminum can material production capacity into automotive aluminum sheet production capacity. This could increase its total production capacity for automotive aluminum sheets to 0.7mnt/year.
　　Meanwhile, the global aviation industry is recovering, and we think domestic mass production of large airplanes will boost demand for aluminum materials used in aviation. The firm is the only domestic firm that supplies aviation materials to both domestic aircraft manufacturers and world-renowned ones such as Boeing, Airbus, and COMAC. As overseas aviation industries recover and domestic mass production of large airplanes accelerates, we expect the firm to continue ramping up its 50,000t production capacity for aviation aluminum sheets. We expect the proportion of high-end products in the firm’s total profits to rise further.
　　Stepping up efforts to establish an integrated presence in aluminum industry value chain in Indonesia; building overseas production site. According to its announcements, the firm put its 2mnt/year alumina production capacity in an Indonesian industrial park into operation in October 2022. The firm plans to also build a 0.25mnt/year electrolytic aluminum project and a 0.26mnt/year carbon project to expand its presence in downstream segments of the industry value chain and improve its integrated presence in the industry value chain. The firm expects the construction of these projects to be completed in 2026.
　　Financials and valuation
　　As falling aluminum prices may weigh on the firm’s net profit per tonne of aluminum products, we lower our 2023 net profit forecast by 6% to Rmb3,848mn. We introduce our 2024 net profit forecast at Rmb3,987mn. The stock is trading at 10.1x 2023e and 9.7 x 2024e P/E. As a rising revenue contribution from high-end products may boost valuation, we maintain an OUTPERFORM rating and keep our target price at Rmb4.19, implying 12.7x 2023e and 12.3x 2024e P/E, offering 26.2% upside.
　　Risks
　　Aluminum price fluctuates sharply; progress of projects disappoints; recovery of demand in downstream industries falls short of expectations.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。