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How did the "20 times" Alcoa come into being? [agency Review]

iconMar 31, 2022 14:47

Alcoa shares have risen nearly 20 times over the past two years. Since March 15, 2020, overseas central banks have released a lot of water, and the shares of Alcoa and Segi Alcoa have continued to rise. As of March 29, 2022, Alcoa and Segi Alcoa have risen 18 times and 9.4 times, respectively, and 7.1 times and 3.4 times the highest earnings of the S & P 500, respectively. Looking back, Alcoa and Segi Alcoa share prices are in line with the aluminum price cycle, but ahead of the start and end of aluminum prices.

Benefiting from the sharp rise in aluminum prices, Alcoa's performance has improved significantly, with electrolytic aluminum and alumina accounting for a high proportion of profits. In 2021, the average price of LME aluminum soared 45.5% from the same period last year. Alcoa benefited significantly and its performance improved significantly, with revenue of US $12.15 billion, up 31% from the same period last year, and EBITDA of 1.863 billion US dollars, up 92% from the same period last year. From a business point of view, electrolytic aluminum and alumina contributed 25.7% of revenue and 81.3% of gross profit of 25.6% respectively, which was the main source of profit for the company. In 2021, the company's gross profit margin increased to 24.7%, the net profit margin increased to 4.8pct to 4.7%, while the three fee fees remained stable, the three fee rate decreased 2.0pct to 7.6%, and profitability increased significantly.

Alcoa: the advantage of integrated layout of aluminum industry is 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 is relatively stable, benefiting from the capacity release of the Guinea bauxite project, the slow growth of bauxite and alumina production, and the high production cost of some of the company's assets and more spare capacity in terms of electrolytic aluminum. the production capacity is declining and the growth is insufficient.

The secret of Alcoa's success: integrated layout, outstanding cost advantage, incentive + stock buyback shows confidence in development.

The company mainly produces 100% self-sufficient raw materials, some products are exported, bauxite exports account for 12.0%, alumina exports account for 72.6%. The company has integrated layout and obvious cost advantage. in 2021, the alumina cost of the company is lower than 110 yuan / ton of Hongqiao, and the cost of electrolytic aluminum is 430 US dollars / ton lower than that of Century Aluminum. The performance of management compensation is relatively high, and most of the incentives are paid in stock, and senior executives require shareholding, and the interests of management and shareholders are bound, which is conducive to improve the performance of the company. In the fourth quarter of 2021, the company bought back shares and launched a new buyback plan, which increased from $200 million to $500 million, demonstrating management's confidence in the future.

For Standard Alcoa, the profitability of domestic aluminum enterprises is strong, and the valuation is expected to improve. Gross profit of electrolytic aluminum tons: Chinalco (4912 yuan, including aluminum downstream processing business) > Hongqiao (4654 yuan) > Shenhuo (4309 yuan) > Alcoa (4154 yuan); ROE, Shenhuo (34.5%) > Hongqiao (19.8%) > Alcoa (9.2%) > Chinalco (8.9%); profitability, Hongqiao and Shenhuo are much stronger than Alcoa, while Chinalco is relatively weak. In terms of valuation PE, Alcoa (40) > Chinalco (20) > Shenhuo (10) > Hongqiao (5), Shenhuo, Hongqiao and Chinalco are much lower than Alcoa. Compared with Alcoa, domestic 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 better, for Standard Alcoa, the profitability of domestic electrolytic aluminum enterprises is strong, the valuation level is low, it is expected to improve in the future, and continue to recommend strong profitability. Shenhuo shares with low valuation, Yunnan Aluminum shares, Chinalco, Nanshan Aluminum and Tianshan Aluminum.

Risk tips: higher-than-expected release of supply, lower-than-expected demand, sharp rise in costs and differences in stock market valuations between China and the United States.

Alcoa
industry analysis
institutional point of view
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