1H21 performance is slightly lower than we expected.
The company announced 1H21 results: revenue was 36.28 billion yuan, up 60.3%; net profit was 661 million yuan, down 21.0%; adjusted EBIT (excluding other income) was 584 million yuan, down 33.6% from the same period last year; due to the decline in profits caused by rising prices of upstream raw materials, 1H21 performance was slightly lower than we expected. Development trend 1H21 business continues to recover, structurally high growth. 1H21 benefited from the recovery of downstream demand and a low base in the same period last year, and revenue from all business sectors of the company showed relatively high growth. Overall, revenue from the manufacturing sector reached 14.79 billion yuan, an increase of 18.9 percent, while revenue from trade and other businesses totaled 21.49 billion yuan, an increase of 110.8 percent. 1H21 manufacturing sub-business point of view: 1) lead-acid battery business revenue increased 12.7% to 13.12 billion yuan, of which electric two-wheel / tricycle lead-acid battery shipments reached 36.2GWh, an increase of 14.9%, and corresponding revenue increased 12.8% to 11.99 billion yuan Special purpose batteries benefit from the release of start-up and shutdown new orders, and the improvement of infrastructure prosperity drives the demand for special batteries, with revenue rising 84.4% to 450 million yuan over the same period last year. 2) Lithium business shipments of 0.72GWh (mainly ternary), 16.9%, and corresponding revenue of 420 million yuan, 5.2%, a steady increase 3) the recycling business benefited from the full release of production capacity, with revenue rising 213.0% to 1.244 billion yuan compared with the same period last year. At present, the company has formed an annual capacity of 700000 tons of waste lead-acid batteries, or about 400000 tons of recycled lead, as well as an annual capacity of 7000 tons of waste lithium batteries.
Affected by the rising prices of raw materials, profits are under pressure. In terms of lead-acid batteries, the price of 1H21 lead rose 4.8% over the same period last year, while copper and tin of other materials increased by 30-50%. We estimate that the price of lead-acid batteries for electric tricycles is the same as that for 20 years, and the gross profit margin decreases by 4.3ppt to 13.7%. The company has signed a lead price linkage clause with downstream customers, but 1H21 downstream customers are under greater profit pressure due to the upstream price increase. We believe that the company may bear part of the upstream price increase from the perspective of long-term strategic cooperation and maintaining market share. Correspondingly, the market share of 1H21 two-wheeled vehicles remains at a high level of 40-50%. The recycled lead business benefited from the release of capacity and improved profitability, offsetting declining profits in some lead-acid businesses; 1H21's comprehensive gross margin fell 4ppt to 5.3 per cent.
Strengthen cost control and improve the efficiency of operation and management. 1H21's sales, management and financial expense rates are 1.1%, 1.2% and 0.3% respectively, down 0.5ppt, 0.3ppt and 0.1ppt compared with the same period last year. Under the background of rising prices of upstream raw materials, the company has step by step to strengthen cost control.
Profit forecast and valuation
Due to the rise in raw material prices, we have lowered our 21-year net profit forecast by 16% to 2.204 billion yuan, leaving the 22-year profit forecast unchanged at 2.864 billion yuan. The current stock price and target price correspond to 21 / 22 6.1x/4.7x Pmax E and 7.2x/5.6x Pmax E, with 22.8% upside space, maintaining an industry rating that outperforms.
Risk.
Domestic sales of electric tricycles fell short of expectations, and the prices of lead and other materials rose faster than expected.