ALUMINUM CORPORATION OF CHINA(601600)：1H23 RESULTS IN LINE WITH EXPECTATION;KEY PROJECTS LIKELY TO ACCELERATE

　　1H23 results in line with our expectation
　　Aluminum Corporation of China (Chalco) announced its 1H23 results: Revenue fell 15.66% YoY to Rmb134.06bn, attributable net profit declined 23.32% YoY to Rmb3.42bn, and recurring net profit dropped 24.85% YoY to Rmb2.88bn. In 2Q23, revenue fell 2.86% YoY and rose 2.27% QoQ to Rmb67.78bn, and net profit attributable to shareholders decreased 33.58% YoY and 11.55% QoQ to Rmb1.60bn. Results were in line with our expectations, and the YoY decline in earnings was mainly due to lower prices of main products such as aluminum and alumina, in our view.
　　Production remained stable overall; earnings hurt by falling prices of　main products. In 1H23, Chalco's output of metallurgical alumina fell 9.05% YoY to 8.23mnt. Output of fine alumina rose 5.13% YoY to 1.88mnt, while that of aluminum declined 5.57% YoY to 3.06mnt. Coal output increased 11.67% YoY to 6.22mnt. Alumina prices decreased 3.7% YoY, reducing the firm's alumina profit. However, total profit of the alumina segment climbed 26.14% YoY to Rmb1.32bn, thanks to YoY growth in profits from ores. Aluminum prices fell 13.7% YoY and, thus, profits of the aluminum segment dropped 47.53% YoY to Rmb3.94bn in 1H23.
　　Asset structure optimized; financial expenses continued to improve.
　　In 1H23, Chalco’s liability-to-asset ratio was 55.61%, down 3ppt from the beginning of the year. The firm's financial expenses fell 16.31% YoY in 1H23, reflecting its efforts to reduce interest-bearing debt and optimize financing costs. Asset impairment loss narrowed Rmb2.79bn YoY to Rmb217mn.
　　Trends to watch
　　Key projects to accelerate. Chalco continued to strengthen its upstream resource segment, adding 21mnt of domestic bauxite resources in 1H23.
　　Steady progress in key midstream projects enhances the firm’s profitability. In 1H23, construction of Huayun Phase III aluminum project in Inner Mongolia started (420,000t/yr), and Huasheng Phase II aluminum project in Guangxi was well on track (2mnt/yr). The firm has expanded to premium downstream product markets. It launched 12 new fine alumina projects in 1H23, and started construction of lithium-ion battery separator and micro-powder aluminum hydroxide projects.
　　Aluminum prices to continue trending upward thanks to China's pro-growth policies. In the near term, we believe that production resumption in Yunnan is nearing an end, and domestic operating capacity of aluminum is gradually peaking. We think supply may gradually stabilize.
　　We expect aluminum prices to trend upwards, as the implementation of pro-growth policies boosts market confidence, and the peak season begins. We expect Chalco to benefit as a global leader of aluminum production.
　　Financials and valuation
　　As prices and per-tonne costs of aluminum are both falling, we maintain our 2023 net profit forecast and introduce our 2024 net profit forecast of Rmb7.49bn. A-shares are trading at 15.8x 2023e and 15.7x 2024e P/E; H- shares are trading at 9.3x 2023e and 8.9x 2024e P/E. Given recovering macroeconomic expectation and rising valuations, we maintain our NEUTRAL ratings, but we raise our target prices for A-shares by 31% to Rmb7.2 (implying 17.1x 2023e and 17.0x 2024e P/E, with 8% upside), and for H-shares by 40% to HK$4.9 (implying 11.2x 2023e and 11.1x 2024e P/E, with 12% upside).
　　Risks
　　Disappointing economic recovery and/or pro-growth policies; sharp price fluctuations.
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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。