1H24 results beat our expectations

Aluminum Corporation of China announced its 1H24 results: Revenue fell 17.41% YoY to Rmb110.72bn, attributable net profit rose 105.36% YoY to Rmb7.02bn, and recurring attributable net profit grew 137.76% YoY to Rmb6.86bn. In 2Q24, revenue fell 8.88% YoY but rose 26.16% QoQ to Rmb61.76bn, and attributable net profit rose 198.45% YoY and 114.60% QoQ to Rmb4.79bn, beating our expectations.

Profits of primary aluminum and alumina segments rose sharply thanks to rising sales volume and prices. The firm’s primary aluminumoutput grew 18.63% YoY to 3.63mnt in 1H24, and its alumina output grew 1.58% YoY to 10.27mnt. Domestic aluminum prices rose 8% YoY in 1H24, and alumina prices rose 21% YoY. Profits of the firm’s primary aluminum and alumina segments rose 96.15% and 233.07% YoY to Rmb7.6bn and Rmb4.27bn in 1H24, driven by rising sales volume and prices.

Asset structure continued to improve and liability-to-asset ratio hit a 10-year low; first interim dividend to reward shareholders. The firm’sliability-to-asset ratio fell below 50% for the first time in the past 10 years to 49.97% in 1H24, down 3.33ppt from end-2023. Asset impairment decreased Rmb169mn YoY to Rmb15mn in 1H24. The firm proposed an interim cash dividend of Rmb0.82 for every 10 shares (tax included), implying a dividend payout ratio of 20.05%.

Trends to watch In China, the firm is further strengthening resource exploration and development, accelerating the upgrading of the electrolytic aluminum industry, and promoting high-quality development of thedeep processing industry. According to corporate filings, the firm continues to secure resources in the upstream and is accelerating its acquisition of bauxite resources in Henan, Shanxi, and Guizhou. In the midstream, the firm is promoting industrial upgrading and adjustment and plans to accelerate progress on its 2mnt/year alumina project in Guangxi, 420,000t/year aluminum project in Inner Mongolia, 500,000t/year aluminum project in Qinghai, and 1,200MW power system project in Inner Mongolia. In the downstream, the firm is accelerating progress on its　aluminum alloy flat ingot and recycled aluminum alloy projects, and promoting high-quality development of new businesses such as alternative energy, fine alumina, gallium metal, and high-purity aluminum.

In overseas countries, the firm continues to expand its resources toenhance sustainable development. The firm now has around 1.8bnt of bauxite resources in the Republic of Guinea (Guinea-Conarky). It is building a bauxite stope in Boffa, Guinea-Conarky, and plans to step up efforts to acquire bauxite resources in countries such as Guinea-Conarky and Indonesia.

Financials and valuation

Considering rising prices of aluminum and alumina, we raise our 2024 and 2025 earnings forecasts 79% and 88% to Rmb14.1bn and Rmb14.8bn.

The firm’s A-shares are trading at 8.2x 2024e and 7.8x 2025e P/E, and H- shares are trading at 5.3x 2024e and 4.9x 2025e P/E. For A-shares, we maintain a NEUTRAL rating, and taking into account earnings forecast revisions and sector valuation changes, we maintain our target price of Rmb8.3, implying 10.1x 2024e and 9.6x 2025e P/E and offering 23% upside. For H-shares, we maintain a NEUTRAL rating and our target price of HK$5.6, implying 6.2x 2024e and 5.7x 2025e P/E and offering 15% upside.

Risks

Disappointing global economic recovery and/or pro-growth policies; sharp fluctuations in product prices.