Key points of investment

First half of 2022: Revenue increased 174% year on year, net profit after deducting non-return increased 70% year on year 1) 2022 mid-year report: 2022H1 achieved revenue of 950 million yuan, an increase of 174% over the previous year, net profit of 62 million yuan, an increase of 68% over the previous year, and achieved net profit of 60 million yuan after deducting non-return mother's net profit of 60 million yuan, an increase of 70% over the previous year. The single quarter of 202Q2 achieved revenue/net profit of 61/30 million yuan, an increase of 326%/362% over the previous year and an increase of 83%/1% over the previous quarter. 2) Profitability: The gross profit margin and net interest rate of 2022H1 were 16.3%/6.6% respectively, down 7.8/4.3 percentage points from the same period last year; the single-quarter gross profit margin and net interest rate of 2022Q2 were 14.1%/5.3% respectively, down 25.9/0.8 percentage points from the previous year and 6.4/3.9 percentage points from the previous year. 3) Expense situation: In the first half of 2022, the company's sales, management and financial expenses rates were 1.3%/5.1%/1.8% respectively, compared to -1.2/-6.6/-3.7pct, respectively. The sales, management, and financial expenses ratio of 2022Q2 in a single quarter were 1.0%/3.8%/1.4%, respectively -2.7/-11.1/-5.0 pct, respectively, and -0.9/-3.5/-1.2 pct, respectively.

Lithium battery material equipment and production line contractors, the share of lithium battery revenue rose to 88%, and lithium battery orders increased 33% year-on-year. The company laid out new energy business in 2017, providing overall smart factory solutions and lithium battery proprietary equipment manufacturing for lithium battery materials companies. Currently, it is the only listed company that supplies the entire lithium battery material line. The lithium battery sector achieved general contract revenue of 8.3 billion yuan in the first half of 2022, an increase of 194% over the previous year, accounting for 88% of total revenue in the first half of the year; the petrochemical sector achieved design revenue of 110 million yuan, an increase of 87% over the previous year, accounting for about 12% of revenue. In the first half of the year, the company signed a total of 2.14 billion yuan of new contracts, including 1.99 billion yuan for the lithium battery sector (93%, a year-on-year increase of 33%), and 150 million yuan (6.9%) for engineering consulting and design contracts in the chemical sector.

The acquisition of kiln outer rail supplier Wuxi Baiqing promoted a trend increase in the equipment self-supply ratio. In August 2022, the company acquired 60% of Wuxi Baiqing's shares in cash at 1.2 million yuan and completed business changes, which is expected to help the company further increase its equipment self-supply ratio from 40% and enhance the profitability of the lithium battery sector. Wuxi Baiqing has rich industry experience and technical advantages in the design and construction of external circulation lines for lithium battery anode materials industry kilns. It has stable cooperation with lithium battery material manufacturers such as Shanshan Co., Ltd., Puterai, Kaijin Energy, and Honeycomb Energy. Through mergers and acquisitions of Baiqing, the company has broadened the variety of independent equipment. The two sides complement each other's strengths and share technological achievements and customer resources, jointly develop the market, and enhance the competitiveness of the company's equipment side.

It has strong technical research and development capabilities, high-quality and stable customer resources, and maintains a leading position in the field of lithium battery materials and equipment. The wholly-owned subsidiary Bailey Lithium Battery (formerly known as Nanjing University Zijin) has rich equipment and complete line service experience in lithium battery cathode, anode, and precursor production lines, and has built more than 500 production lines across the country. With leading engineering design capabilities and service concepts, the company has been widely recognized by high-quality customers such as Dangsheng Technology, Betry, Anhui Haichuang, Guoxuan Hi-Tech, New Lithium, BASF Shanshan, Chengdu Bamo, and Ningde Shidai, and continues to develop new customers.

Profit forecasting and valuation

Revenue for 2022-2024 is expected to be 29.3/47.9/6.23 billion yuan respectively, an increase of 182%/63%/30% over the previous year, and the net profit of the mother is 22/366/52 billion yuan respectively, an increase of 658%/62%/45% over the previous year. Corresponding PE is 30/19/13X respectively, maintaining the “buy” rating.

Risks suggest that majority shareholders pledge risk; lithium battery market sentiment falls short of expectations; acquisition integration falls short of expectations, etc.