2021 earnings uptrend to continue
Profit alert for 2021 net profit growth is within our expectation. Hongqiao disclosed that net profit for 2021 would increase by 60% although earnings growth in the second half had slowed due to higher base and coal price increase. Despite so, higher aluminium selling prices to support revenue and net profit growth last year.
Earnings on an uptrend, superior GP. We believe the stronger aluminium prices to drive higher GP in 1Q22. We think sales volume would remain stable in anticipation of higher sales contribution from Yunnan, outweighing the impact of the shutdown in Shandong. The company should enjoy cheaper hydro power energy source and lower production cost, which would enable CHG to deliver above-industry average earnings performance.
Concerns on risk of power surcharges is overdone. It is believed the government has low priority for imposing such surcharge in the current energy shortage environment.