Event: in the first half of 2022, the company achieved operating income of 580 million yuan, an increase of 144.50% over the same period last year, an operating profit of 43.83 million yuan, an increase of 655.69% over the same period last year, and a net profit of 30.29 million yuan, an increase of 2065.60% over the same period last year. 25.41 million yuan, an increase of 799.96% over the same period last year.
The low profit in the second quarter is mainly due to the influence of downstream customer delivery structure. After the release of the company's semi-annual report, from the breakdown of the first and second quarters, many investors are more concerned about the specific reasons for the low profit in the second quarter. From the disclosure of the company's semi-annual report and our understanding of the industry, this is determined by the downstream customer structure of the company. Product prices in the cathode materials industry have been rising from last year to the beginning of this year, and did not fall gradually until late April, which in itself affected the preparation enthusiasm of battery customers, and the delivery of some orders was delayed. In addition, due to the impact of the production capacity structure, the company used to account for a large number of downstream customers in the consumer electronics category. Consumer electronics demand was sluggish in the first half of this year, and affected by the epidemic in the Yangtze River Delta in Shanghai in March and June, many downstream ODM and terminal factories were completely unable to confirm storage, and these industry troubles had a relatively large short-term impact on the company's Q2.
With the gradual decline of the price of lithium cobalt oxide, the problem of customer cost has been alleviated to a certain extent, and after Q3, the national epidemic situation will no longer be blocked on a large scale, so the extreme situation of Q2 will no longer be repeated. then the profits related to lithium cathode materials will gradually return to the normal level.
Sanbi and net profit margin reached 10.88%, fully demonstrating the profit advantages of the waste battery recycling model.
According to the disclosure of the semi-annual report, the operating income of Sanbi, the main subsidiary of waste battery recycling, was 293 million in the first half of this year, with a net profit of 31.92 million and a net profit margin of 10.88 per cent.
From the point of view of cathode material manufacturers, this profit margin is indeed very high, which is due to the company's integrated industrial chain layout from battery waste powder to precursors, lithium carbonate and other materials to the cathode. Compared with the cathode material manufacturers with ore as the main raw material, this model is less affected by the fluctuation of upstream mineral prices and is an important profit advantage of the company.
The release of this data is an important basis for S & B and high profit growth expectations, and some investors have doubts about S & B's profitability in the past. Santo and Santo only began to merge at the end of last year, and the profit contribution in the past few years is limited due to the small scale of production capacity, lack of environmental protection and other reasons.
This year is the first year of Santo and large-scale production, and the first phase of equipment expansion will be completed from Q4 to Q1 next year, and the first phase of production capacity will bring a substantial increase in sales when Q1~Q2 reaches production next year. On this basis, the profit margin assumption of the same model is very important. This is the first official disclosure of profit-related data after Sanbi and large-scale. With this evidence, the following high growth expectations will be clearer.
Yunnan is not affected by the high temperature, the company is not affected by power cuts and benefits from the rebound in material prices. During the summer this year, the whole Sichuan, Chongqing, the middle and lower reaches of the Yangtze River, including the central and northern regions of China, suffered extreme high temperature weather, and the heat wave and drought led to a very severe power supply situation in the corresponding areas. as a result, many enterprises have been plagued by power cuts to stop production or reduce production. Since many manufacturers of lithium cathode materials are in Sichuan and the Yangtze River basin, the stagnation of output after power cuts will cause a shortage in the supply chain. Take lithium carbonate as an example. Lithium carbonate rose 40,000 yuan / ton in the third quarter compared with the second quarter, an increase of 10%.
Yunnan is located in the Yunnan-Guizhou Plateau, although the high temperature weather this year has also affected it to a certain extent, but the supply of hydropower has not been hindered, and the start-up of enterprises in Yunnan has not been affected by power cuts. Sheng Bi he is located in Honghe Prefecture, Yunnan Province. It not only has sufficient power supply, but also its electricity price is cheaper than that of many enterprises in the Yangtze River Basin. In the third quarter, it will reflect the full advantages of production capacity and cost in the declining state of the industry.
Profit forecast and investment rating: maintain buy rating. Although the company's profits were low in the second quarter due to problems in the customer delivery structure industry, it still maintained a good growth trend in the first half of the year, and the impact of turbulence caused by epidemic control will no longer reappear. Starting from the second half of the year, the company's first phase of production expansion equipment will gradually enter the plant and land on the ground. after the completion of the construction, the company will achieve an annual output of 15000 tons of precursors, 5000 tons of lithium carbonate and 10,000 tons of cathode materials, if estimated at current prices, after the first phase reaches production, next year's Sanbi and annualized sales are expected to exceed 40 billion yuan and 5 billion yuan, and the high profit growth trend next year and the year after next is very clear. In the direction of traditional electronic business, the company has been gradually shrinking LED channel engineering business, focusing on heat dissipation devices, and successfully opened up 2B types of heavy customers such as Foxconn in the first half of the year, which will show a more healthy growth elasticity in the future.
We are optimistic about the continuous improvement and expansion of the company in the waste lithium battery recycling industry. The lithium recycling segment is a high-growth track worthy of attention. It is predicted that the company will achieve net profit of 0.85,2.96 and 632 million yuan respectively from 2022 to 2024 (assuming that the company completes Sanbi and 100% consolidation by the end of 2023). The current market value of the company is 37.72,10.82,5.08 times respectively. In the medium-term dimension, there is obviously a lot of room for growth, maintaining the company's buy rating.
Risk hints: (1) the company's waste lithium battery recycling and cathode material expansion fell short of expectations; (2) the price of materials upstream and downstream of lithium battery fluctuated sharply, which led to a change in the company's growth assumptions; (3) traditional LED lighting business dragged down more than expected, resulting in sustained local business losses; (4) the development of key customers downstream of the cooling industry was not smooth, and the industry competition intensified.