Benefiting from the sharp rise in magnesium prices, Yunhai Metal's performance has more than doubled in 2021 [Agency Review]

The company's performance in 2021 is expected to double and its fourth-quarter profit is expected to reach an all-time high. Yunhai Metal disclosed its 2021 performance forecast on the evening of January 5. The company expects to make a profit of 500 million yuan to 580 million yuan in 2021, up 105.13% and 137.95% over the same period last year. The increase in performance was mainly due to higher product prices, an increase in gross profit margin and an increase in sales. At the same time, the impact of non-recurrent profit and loss on net profit is expected to be about 70 million yuan (compared with 15.3024 million yuan in the same period last year). The company's quarterly net profit in the fourth quarter is expected to exceed 300 million (according to the upper limit of the performance forecast guidelines), setting a new high for a single quarter.

Benefiting from the sharp rise in magnesium prices, the smelting side of the company released significant profits. The price of magnesium ingots has risen sharply since the third quarter of this year, and has now exceeded 51000 yuan per ton, an increase of more than 220% over the beginning of the year. Although the magnesium price in the fourth quarter is lower than the high in the third quarter, it still operates around 40000-50000 yuan / ton. at the same time, the price of ferrosilicon and coal at the end of raw materials has dropped somewhat, and the original magnesium smelting profit of the company has exceeded 20000 yuan / ton. The company's fourth-quarter net profit growth rate is expected to exceed 120%, the smelting end of the full release of performance.

The explosion period of the company's performance is expected to begin when the new production capacity is gradually landed. With the gradual commissioning of Chongqing Boao Phase II project, the release of Chaohu Yunhai die casting capacity, and the steady construction of Qingyang project, the company is expected to achieve rapid development in magnesium-aluminum materials and upstream resources in the next 2 years. Recently, the company announced that it plans to build 150000 tons of lightweight aluminum extruded profiles and supporting projects in Chaohu, Anhui Province, mainly to produce extruded profiles for aluminum body parts of new energy automobiles. After the project reaches production, it is expected to achieve an annual net profit of 210.46 million yuan. The company has continued to expand its production capacity and product line in recent years, and is expected to enter the harvest period from this year.

It is optimistic that the company has a solid position as the leader of the integration of the magnesium downstream demand outbreak in 2022. We believe that with the gradual increase of magnesium alloy structure of lithium battery and the increase of permeability of magnesium alloy building formwork. The downstream demand for magnesium is expected to burst in 2022. As the leader of the integration of magnesium smelting and deep processing in China, the company relies on the deep resources of Baosteel, the second shareholder, and makes use of the cost advantage of the upstream smelting end, so it is expected to fully enjoy the growth dividend of the industry.

Investment suggestion: as a leading enterprise in the integration of magnesium smelting and deep processing, with the gradual landing of new production capacity, Yunhai Metal is expected to enter the performance release period, the company's operating income is expected to reach 99.97, 115.49, 12.993 billion yuan in 2021-2023, the net profit of returning home is 5.50,6.17,662 million yuan respectively, and the EPS is 0.85,0.95,1.02 respectively. Cover for the first time, giving a "buy" rating.

Risk hint: magnesium prices fell short of expectations for the progress of new production capacity.