[Chinalco.com] Xinjiang Zhonghe (600888): Profitability continues to increase strongly Recommended rating

Minsheng Securities pointed out that the company has formed a "energy-high purity aluminum-electronic aluminum foil-electrode foil" resource advantage industrial chain with "high-purity aluminum, electronic aluminum foil, electrode foil" as the leading product. The current self-sufficiency rate of the company is 60%. After the completion of all projects in 2013, the self-sufficiency rate will be as high as 90%. Due to the advantages of coal and electricity, the self-generation cost is about 0.25 yuan/kWh, which is far lower than the 0.43 yuan/kWh of electricity purchased. The increase in electricity self-sufficiency rate is expected to further increase the gross margin of products.
Industrial energy saving, consumption upgrading, and new energy broaden the demand for aluminum foil. China's aluminum foil applications have seen diversified and rapid growth. Industrial energy conservation and consumption reduction, electric vehicle, consumer electronics upgrade, and new energy development will continue to expand. In the application field of high-voltage aluminum electrolytic capacitors, it is expected that the compound growth rate of domestic high-voltage electrode foils will reach 20% in the next 3-5 years. Compared with low-voltage electrode foils, the company's high-voltage electrode foil products have large capacitance reserves, and the difference in their gross profit margins is about 3% to 5%. With the further improvement of technological transformation, the structure of high-pressure products in new investment projects will gradually increase, product structure will be further optimized, and profitability will continue to increase. Minsheng Securities expects the company's 2011-2013 EPS to be 0.90 yuan, 1.56 and 1.97 yuan respectively, corresponding to the current stock price PE of 24.21, 13.94, and 11.03 times respectively, giving the company a "strongly recommended" rating.

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