2021 performance is higher than we expected.

The company announced its results in 2021: revenue 5.202 billion yuan, an increase of 118% over the same period last year, and a net profit of 311 million yuan, an increase of 63% over the same period last year. In a single quarter, 4Q21 revenue was 1.983 billion yuan, an increase of 213% over the same period last year, and a net profit of 143 million yuan, reversing losses over 2020. The performance exceeded our expectations, mainly due to the higher-than-expected growth of lithium electricity orders.

Lithium power business is growing at a high speed, and the gross profit margin is declining more. In 2021, the income of lithium power equipment is 4.907 billion yuan, which is the main source of income for the company. In 2021, the company's comprehensive gross profit margin was 21.9%, a decrease of 9ppt compared with the same period last year, mainly due to the high price of raw materials such as steel, rapid personnel expansion and reduced human efficiency. In 2021, the company's sales, management, R & D and financial expense rates decreased by 1.2/1.7/0.7/1.3ppt compared with the same period last year, and the company's net profit margin decreased by 2ppt to 6% in 2021.

There will be a high growth of lithium orders in 2021, and there will be plenty of orders on hand. In 2021, the company signed a new order of 10.6 billion yuan, an increase of more than 221% over the same period last year. The main customers include Ningde Times, Honeycomb Energy, BYD, Guoxuan Hi-Tech and so on. By the end of 2021, the book balance of the company's inventory and contract liabilities was 24.91 / 1.249 billion yuan, an increase of 1.634 billion yuan over the same period last year. In 2021, the net cash inflow of the company's operating activities was 451 million yuan, which was 257 million yuan more than that of the same period last year.

Trend of development

The downstream demand of the industry is expected to maintain rapid growth in 2022. According to the statistics of the China Automobile Association, in 2021, China sold more than 3.5 million new energy vehicles and installed more power batteries than 150GWh, both of which doubled compared with the same period last year. According to the China Automobile Association, sales of new energy vehicles are expected to exceed 5 million in 2022, continuing to maintain rapid growth.

The expansion of lithium battery production and equipment bidding in 2022 are expected to maintain rapid growth. We estimate that the 2021 lithium equipment bidding will expand production by about 300GWh, we estimate that the industry equipment bidding will achieve a 50% increase in 2022, and the downstream expansion will be about 500GWh. We expect the lithium equipment head company to maintain rapid growth in 2022 and 2023.

Profit forecast and valuation

Considering the higher-than-expected demand for orders, we raised the 2022 EPS forecast by 15% to 1.07 yuan, and introduced the 2023 EPS forecast of 1.62 yuan. The company's current share price corresponds to 2022 24.1x/16.0xPE 2023. We maintain the target price of 32 yuan, corresponding to 2022 30x/20x PE 2023, with 24% upside space. Maintain a neutral rating.

Risk

Capacity expansion is not as expected; delivery of orders is not as expected.