Company Profile

Xinjiang Joinworld Co Ltd is a China-based company principally engaged in the research and development, production and sales of new electronic materials and aluminum and alloy products. The Company's main products include high-purity aluminum, electronic aluminum foil, electrode foil, aluminum products and alloy products. The Company's products are mainly used in electronic equipment, household appliances, automobile manufacturing, wire and cable, transportation, aerospace and other fields. The Company distributes its products both in the domestic market and to overseas markets. (Source: Reuters)

Event

Xinjiang Joinworld (the company) announced its Q3 preliminary earnings report, and the performance surged from a year earlier and a month earlier.

In the first three quarters, the company hit CNY 580 million~CNY 600 million in net profit attributable to shareholders, up CNY 340 million ~ CNY 360 million from a year earlier, with the growth reaching 141.4%~149.7%.

By quarters, the net profit attributable to shareholders in Q321 stood at CNY 260 million~CNY 280 million, an increase of 143%~ 161.8% from a year earlier and 45.4% ~56.7% from a month earlier. The performance beat our expectations.

Comments

The surge from a month earlier was due to the continued price increase of electrode foil and record high price of electrolytic aluminum as the supply and demand was in tight.

1) With high prosperity, the electrode foil industry underwent multiple upgraded selling prices. As the demand from emerging fields continued to rise, the company’s performance is expected to increase in Q4.

2) The prices of aluminum furthered to hit a new record on the monthly basis. As the company was less impacted by the power and production restrictions and enjoys stable costs, the prices markup of aluminum products will significantly boost the company’s profits.

The electrode foil industry is to embrace the turning point of supply and demand dynamics. And the price markup is likely to sustain.

The price spike was mainly due to rising demand from emerging fields in the downstream other than the driving force from the supply side.

Additionally, the price markup was also a result of price increase of electricity, price surge of aluminum and vitriol. We estimate the price of electrode foil will continue to rise in 2021- 2022.

Thanks to the development opportunities of semiconductors and aerospace, the share allocation scheme to expand projects will unleash its growth potentials.

The share allocation scheme will expand production capacity of high-purity aluminum by 15,000 tons, super-purity aluminum base sputtering target by 500 tons and casting blank with high-resilience aluminum alloy section by 3,000 tons, which will facilitate the company to embrace more growth.

Earnings forecast and investment recommendation As the price of aluminum is likely to maintain at high levels , the electrode foil is expected to embrace a rise in both volume and price, we estimate the company will undergo an accelerated development period and upgrade its net profit attributable to shareholders forecasts to CNY 939 million in 2021, CNY 1.224 billion in 2022 and CNY 1.454 billion in 2023, and EPS to CNY 0.71, 0.92 and 1.10, respectively, implying a P/E ratio to be 11.3x, 8.7x and 7.3x, based on the closing price on October 4th 2021. Reiterate “Outperform”.

Potential risks

a sharp decline in aluminum price; slower-than-expected progress of fundraising project; less-than-expected demand for electrode foil from the downstream