下载格隆汇APP
下载诊股宝App
下载汇路演APP
社区
会员
机构：中金公司
研究员：Zheng WANG/Ding QI/Yan CHEN
Shangdong Nanshan Aluminum Co., Ltd. (Nanshan) announced its 2021 results: Revenue grew 28.8% YoY to Rmb28.73bn; attributable net profit rose 66.4% YoY to Rmb3.41bn; and recurring net profit increased 71.4% YoY to Rmb3.34bn. In 4Q21, revenue climbed 6.3% QoQ or 24.6% YoY to Rmb8.34bn; attributable net profit fell 11.9% QoQ but rose 40.3% YoY to Rmb892mn; and recurring net profit dropped 15.4% QoQ but grew 33.7% YoY to Rmb859mn. We mainly attribute the firm’s profit decline in 4Q21 to steam coal price hikes and rising cost of generating electricity.
Proportion of high-end products up; product mix adjustment paid off. Nanshan adjusted its product portfolio by increasing the proportion of its high-end products. The firm’s sales volume of aluminum automotive body sheets (ABS) exceeded 110,000t and its 21,000t high-performance foils for automotive batteries were already on-stream. Sale volume and gross profit of high-end products accounted for 12.66% (up 6.66ppt YoY) and 19.89% (up 6.62ppt YoY) of Nanshan’s total aluminum products.
Output and sales of aluminum products strong; Indonesia project to become the growth driver. Output and sales of Nanshan’s aluminum oxide products rose 28.0% and 23.5% YoY to 2.27mnt and 2.26mnt. Output and sales of cold rolled aluminum reached 0.83mnt (up 18.9% YoY) and 0.90mnt (up 16.2% YoY), with those of hot rolled aluminum at 1.10mnt (up 8.3% YoY) and 1.13mnt (up 5.6% YoY). The firm’s proprietary 0.80mnt of electrolytic aluminum capacity contributed incremental earnings thanks to surging aluminum price (up 33%). In addition, Nanshan put its 1mnt Phase-I Indonesia project of aluminum oxide into trial operation in May 2021, which reached full capacity in September. The remaining 1mnt Phase-II project is scheduled to come on-stream in 2H22, further boosting earnings growth.
Trends to watch
ABS capacity expansion and output accelerated, likely to reach 0.40mnt by end-2023 and 0.70-0.80mnt over the long term. Demand for ABS grows rapidly but its manufacturing poses high technological barriers (mostly by European and American manufacturers). Nanshan, as the first ABS supplier in China, currently owns a 0.20mnt/yr capacity that is in operation. Further, the firm plans to construct a new 0.20mnt/yr capacity, which is scheduled to come on-stream at end-2023. In addition, the firm plans to switch existing production lines indefinitely based on the market conditions to produce 0-0.40mnt/yr of ABS, bringing its total capacity to 0.70-0.80mnt/yr.
Electrolytic aluminum price likely to remain high, favoring firms that maintain effective control over electricity costs. We believe overseas output reduction due to tight energy supply, surge in China’s exports and China’s pro-growth policy will likely tighten aluminum supply, further pushing up its prices. As a result, we expect electrolytic aluminum firms that maintain effective control over electricity costs to realize high per-tonne profit of aluminum.
Financials and valuation
Considering both the rising aluminum price and cost hikes, we raise our revenue forecast and maintain our earnings forecast for 2022-2023. The stock is trading at 10x 2022e and 9x 2023e P/E. Given the market’s lower risk appetite, we cut our TP 32% to Rmb4.50 (12x 2022e and 11x 2023e P/E), offering 22% upside. We maintain an OUTPERFORM rating.
Risks
ABS capacity expansion disappoints; aluminum price fluctuates sharply; Indonesian policy headwinds.