The company released its 2022 semi-annual report, and the performance is in line with market expectations.

22H1 achieved revenue of 2.05 billion yuan, +2% year on year; net profit of 200 million yuan, +1% year on year; net profit of non-return mother was 180 million yuan, -5% year on year.

Among them, Q2 revenue was 940 million yuan, -16% year on year, -15% month on month; net profit of returned mother was 76 million yuan, -44% year on year, -40% month on month; net profit after deducting non-return mother's net profit was 70 million yuan, -45% year on year and -36% month on month.

Volume: Shipments declined month-on-month under the influence of the epidemic

The 22Q1/Q2 company is expected to ship 80,000 tons and 0.75,000 tons of lithium battery copper foil, of which 4um/6um/8um accounts for 15%/55%/25% respectively. After superimposing standard foils, the company is expected to ship a total of 90,000 to 0.85 million tons of copper foil for 22Q1/Q2. The main reasons for the month-on-month decline in shipments were:

1) The Q2 industry as a whole is in a cycle of inventory consumption, and there is a phased excess on the supply side; 2) the epidemic caused the company's new production capacity in Qinghai to be put into operation and the climbing slowed; 3) the epidemic caused downstream battery factory customer production schedules to decline briefly.

Profit: Processing fees have been lowered, and profits are under pressure in the short term.

22Q2 The company's overall gross profit margin was 23.1%, -0.7% month-on-month. The gross profit margin of the lithium battery copper foil business is expected to drop by about 1 pct month-on-month. Q1/Q2 net profit per ton of lithium battery copper foil is 1.3 and 0.90,000 yuan/ton, respectively. The main reasons for the month-on-month decline are:

1) The overall Q2 processing fee fell 0.5-10,000 yuan/ton month-on-month, which is a common phenomenon in the industry; 2) The Q2 cost rate was +2pct month-on-month, of which the R&D cost rate was +1.5pct month-on-month, which affected net profit of about 14 million yuan per ton when converted to about 0.15 million yuan/ton.

3) The epidemic caused the company's copper-clad plant in Jiangsu to shut down, causing some losses; future outlook: Production capacity climbed and accelerated in the second half of the year, and profitability is expected to pick up.

Production capacity: 12,000 tons have been put into production in Huizhou, 15,000 tons have been put into operation in Qinghai. Currently in the process of climbing the hill, Q3 is expected to be full, with a production capacity of 70,000 tons by the end of the year 22; Qinghai Phase III is 15,000 tons, Huangshi Phase I 50,000 tons, and Jiangxi Phase I (partial) 20,000 tons will be put into production, with a production capacity of 155,000 tons by the end of the year.

Shipment: Qinghai's new production capacity is expected to reach 0.55 million tons in a single month after full production capacity. The company expects Q3/Q4 to ship 13,000 to 17,000 tons, totaling 48,000 tons for the whole year, and 80,000 tons next year.

Profit: It is expected that in the second half of the year, as downstream demand continues to be strong, fee control capabilities strengthen, and processing costs rise, the company's annual net profit per ton is 11—12,000 yuan/ton.

Profit forecasting

The company is expected to achieve net profit of 62.06 billion yuan to the mother in 2022-23, corresponding to 29/17 times the current PE valuation.

Risk warning

The company's shipments fell short of expectations, and the company's shipments and profits fell short of expectations; the decline in processing fees exceeded expectations; industry competition exceeded expectations.