Performance review

1H21 performance is in line with our expectations

The company announced 1H21 results: revenue 14.623 billion yuan, year-on-year + 16.4% 6, month-on-month ratio-16.89%; return to the mother net profit of 371 million yuan, corresponding to 0.24 yuan per share, 12.9% year-on-year, month-on-month comparison-42.9%, in line with expectations, mainly due to the company's electrolyte shipments of about 33000 tons in the first half of the year, a significant increase over the same period last year.

Among them, the second quarter: income 8.359 billion yuan, year-on-year + 27.4%, month-on-month + 33.4%; return to mother net profit 205 million yuan, corresponding to 0.13 yuan per share, year-on-year + 24.1%, month-on-month + 23.1% development trend

The lithium industry continues to be booming, and the profitability per ton of electrolyte is expected to bottom out and pick up. In terms of production scheduling, the major battery / electrolyte manufacturers arranged production in August with a monthly production ratio of + 49%. We are optimistic that global sales of new energy vehicles will maintain a high growth in the second half of the year, leading to a sustained strong demand for electrolytes. According to Xinleng information, the company's electrolyte market accounted for nearly 15% in the first half of the year, and continued to maintain the top three positions in the market with less upstream layout of the company. At the same time, the gross profit margin of the company's 1H21 battery materials decreased by 9.68ppt to 22.82% compared with the same period last year, mainly because the price increase of the electrolyte was less than that of the raw material 6F. We believe that the shortage of upstream materials will gradually ease with the expansion of relevant production capacity, and the company's profit per ton of electrolyte is expected to bottom out in the future. Subsidiary Ruitai new materials are to be spun off and listed, and electrolyte investment is accelerated. At present, the company has a capacity of 71000 tons of battery materials, with a capacity of nearly 231000 tons under construction, mainly including Poland Huarong 40,000 tons / year lithium-ion battery electrolyte project, Ningde Huarong annual production capacity of 80,000 tons of new materials project, newly built Prusice 40,000 tons / year lithium-ion power battery electrolyte project, Huarong Chemical to 100000 tons / year battery electrolyte expansion project. We believe that the company has a large capacity of battery materials under construction, and according to the announcement of Tianji shares, we plan to cooperate with the company to build 30,000 tons of hexafluorine production capacity, which is optimistic about the company's long-term development potential.

Textile and clothing trade is gradually repaired and turned to the integration of "world supply chain". In July 2021, the company announced that it intends to issue convertible bonds for the construction of Myanmar textile industry base, Vietnam yarn dyeing and finishing projects, in order to expand overseas markets. At present, with the orderly progress of vaccination at home and abroad and the gradual recovery of the global economy, we are optimistic about the steady repair of trade in the textile and clothing industry. At the same time, the company actively adjusts its strategy, gradually changing from "Chinese supply chain integration" to "world supply chain integration". We are optimistic about the improvement of the core competitiveness of trade business.

Profit forecast and valuation

Keeping the profit forecast for 2021 unchanged, we are optimistic that the profitability of electrolyte will pick up next year, and we will raise our net profit in 2022 by 9.89% to 1.196 billion yuan. The current share price corresponds to 21.2 times 2021 / 22 / 18.1 times earnings. Maintain outperform industry rating, but due to the market re-understanding of the company's lithium electrolyte business valuation and industry valuation center upward, we raised the target price by 90.0% to 15.20 yuan, corresponding to 23.3 times 2021 / 22 / 19.9 times earnings, there is 10.0% upward space compared with the current stock price.

Risk.

The sales of new energy vehicles are not as expected, and the price increase of upstream materials is not smooth.