Alcoa’s share price has risen nearly 20 times in the past two years. Since March 15, 2020, overseas central banks have released water, and Alcoa and century aluminum’s share prices have continued to rise. As of March 29, 2022, Alcoa and century aluminum have the highest increases of 18 times and 9.4 times respectively, and the highest returns relative to the S & P 500 are also as high as 7.1 times and 3.4 times. For Alcoa and century aluminum, their share prices are consistent with the aluminum price cycle, but lead the opening and end of aluminum price.
Benefiting from the sharp rise in aluminum price, Alcoa’s performance has improved significantly, and the profit contribution of electrolytic aluminum and alumina accounts for a high proportion. In 2021, the average price of LME aluminum soared by 45.5% year-on-year. Alcoa benefited significantly and its performance improved significantly. The company achieved a revenue of US $12.15 billion, an increase of 31% year-on-year; Achieve ebitda18 US $6.3 billion, a year-on-year increase of 92%. In terms of business, electrolytic aluminum and alumina sectors contribute 69.3% / 25.7% of revenue and 81.3% / 25.6% of gross profit respectively, which are the main profit sources of the company. In 2021, the gross profit margin of the company increased by 10.5pct to 24.7%, and the net profit margin increased by 4.8pct to 4.7%, while the three fee fee rate remained stable, the three fee rate decreased by 2.0pct to 7.6%, and the profitability increased significantly.
Alcoa: the advantages of aluminum industry integration layout are obvious. The company focuses on the upstream development of aluminum, and its business mainly involves the production of bauxite, alumina, electrolytic aluminum and energy. In recent years, the output of the company’s main products has been relatively stable, benefiting from the capacity release of Guinea bauxite project. The output of bauxite and alumina has increased slowly. In terms of electrolytic aluminum, the production cost of some assets of the company is high, there is more idle capacity, the output of capacity has decreased, and the growth is insufficient.
The secret of Alcoa’s success: integrated layout, prominent cost advantage, incentive + stock repurchase, highlighting development confidence.
The company’s main production raw materials are 100% self-sufficient, and some products are exported. Bauxite export accounts for 12.0% and alumina export accounts for 72.6%. The company has an integrated layout and obvious cost advantage. In 2021, the cost of alumina is 110 yuan / ton lower than that of Hongqiao, and the cost of electrolytic aluminum is 430 dollars / ton lower than that of century aluminum. The compensation performance of the company’s management accounts for a relatively high proportion, and the incentives are mostly paid by shares, and the executives require shareholding. The interests of the management and shareholders are bound, which is conducive to improving the company’s performance. In the fourth quarter of 2021, the Company repurchased shares and launched a new repurchase plan. The repurchase amount increased from no more than US $200 million to US $500 million, demonstrating the management’s confidence in future development.
Compared with Alcoa, the profitability of Chinese aluminum enterprises is strong, and the valuation is expected to improve. In terms of gross profit per ton of electrolytic aluminum, Chinalco (4912 yuan, including aluminum downstream processing business) Hongqiao (4654 yuan) Shenhuo (4309 yuan) Alcoa (4154 yuan); In terms of roe, Shenhuo (34.5%) Hongqiao (19.8%) Alcoa (9.2%) Chinalco (8.9%); In terms of profitability, Hongqiao and Shenhuo are far stronger than Alcoa, while Chinalco is relatively weak. In terms of PE valuation, Alcoa (40) Chinalco (20) Shenhuo (10) Hongqiao (5). Shenhuo, Hongqiao and Chinalco are much lower than Alcoa. Compared with Alcoa, Chinese electrolytic aluminum enterprises have strong profitability, low valuation and large room for stock price improvement.
Investment suggestion: the supply and demand pattern of electrolytic aluminum is good. Compared with Alcoa, Chinese electrolytic aluminum enterprises have strong profitability and low valuation level, which is expected to improve in the future. Continue to recommend Henan Shenhuo Coal&Power Co.Ltd(000933) , Yunnan Aluminium Co.Ltd(000807) , Aluminum Corporation Of China Limited(601600) , Shandong Nanshan Aluminium Co.Ltd(600219) and Tianshan Aluminum Group Co.Ltd(002532) .
Risk tip: supply is released beyond expectations, demand is less than expected, costs rise sharply, and valuation differences between China and the United States.
