NANSHAN ALUMINIUM(600219)：OUTPUT AND PRICES OF ALUMINA BOTH RISE; HIGH DIVIDEND PAYOUT RATIO TO REWARD SHAREHOLDERS

　　2024 results in line with our expectations Nanshan Aluminium announced its 2024 results: Revenue rose 16.06% YoY to Rmb33.48bn in 2024. Net profit attributable to shareholders grew 39.03% YoY to Rmb4.83bn. Recurring net profit increased 80.77% YoY to Rmb4.91bn. In 4Q24, revenue rose 29.31% YoY and 8.09% QoQ to Rmb9.25bn. Attributable net profit rose 0.59% YoY and rose 2.96% QoQ to Rmb1.34bn. The 2024 results are in line with our expectations.

    　　Rising output and prices of alumina boosted earnings; three cash dividends paid to shareholders in 2024. We attribute the earnings growth to the firm's alumina projects operating at full capacity and rising alumina prices. According to the firm, its alumina output grew 5.99% YoY to 3.77mnt in 2024. Domestic alumina prices rose 39% YoY to Rmb4,071/t, and overseas alumina prices grew 46% YoY to US$503/t. As a result, the firm's 2024 gross margin rose 6.84ppt YoY to 27.18% and net margin rose 2.38ppt YoY to 14.43%. In 2024, the company declared three cash dividends, cumulatively distributing Rmb1.7 per 10 shares to all shareholders, with the cumulative cash dividend payout ratio reaching 40.92% for 2024.

    　　Trends to watch Sales volume of high-end products continues to rise; contribution from high-end product business to grow. The firm continues to focus on developing high value-added products (e.g., aluminum sheets for automobiles and aviation), with high-end products accounting for 14% of total sales volume and 23% of total gross profit in 2024. Looking ahead, we expect the firm’s production capacity for automotive aluminum sheets to expand. According to corporate filings, the firm has 200,000t/yr existing production capacity in operation for automotive aluminum sheets, and a new 200,000t/yr project came online at end-2024.

    　　Meanwhile, the mass production of domestic large passenger aircraft is boosting demand for aluminum materials used in aviation. Based on its corporate filings, the firm is a main manufacturer of products for a demonstration project for raw materials of domestically-produced large passenger aircraft. Amid fast development of China’s aviation industry, we expect the firm’s production capacity for aluminum sheets for aviation,which now stands at 50,000t/yr, to continue growing in the future, and the proportion of high-end products in the firm’s profit to increase further.

    　　New alumina production line in Indonesia to come online soon; integrated business presence improving. The firm's Phase I 2mnt/yr alumina project in Indonesia has reached designed capacity, and the 2mnt/yr alumina capacity under construction is scheduled to start operation in different batches in 2025 and 2026. Meanwhile, the firm is expanding downstream to build a new electrolytic aluminum project with annual production capacity of 250,000t, with supporting carbon materials capacity and facilities such as docks. The firm expects this project to start operation in 2027.

    　　Implementation of shareholder return plans for next three years shows confidence in future growth. The firm has unveiled a series of specific shareholder return plans for 2024-2026. First, it plans to use no less than Rmb300mn of its own funds to buy back shares and cancel them each year.

    　　Second, it plans to pay a cash dividend that is equivalent to no less than 40% of its distributable net profit each year. The company repurchased Rmb351mn of shares in 2024, with a dividend payout ratio of 40.92%.

    　　Financials and valuation

    　　Given rising profit per tonne of aluminum, we raise our 2025 net profit forecast 7.3% to Rmb5,312mn and introduce our 2026 net profit forecast of Rmb5,395mn. The stock is trading at 8.4x 2025e and 8.2x 2026e P/E.

    　　Given that the improvement in fundamentals has been partially priced in, we maintain an OUTPERFORM rating and TP of Rmb4.8, implying 10.5x 2025e and 10.3x 2026e P/E, offering 25.3% upside.

    　　Risks

    　　Sharp fluctuations in aluminum prices; slower-than-expected progress in project construction; disappointing downstream demand recovery.