occurrences

The company achieved operating income of 946 million yuan in 202H1, an increase of 174.21% over the previous year; net profit of Guimu was 62 million yuan, an increase of 68.40% over the previous year; after deducting net profit of non-Gwimo, an increase of 69.76% over the previous year.

Among them, 2022 Q2 achieved revenue of 612 million yuan, an increase of 326.37% over the previous year; net profit of Guimu was 103 million yuan, an increase of 361.53% over the previous year; after deducting net profit of non-return mother, an increase of 301.82% over the previous year.

Brief review

Revenue increased dramatically, and performance continued to be achieved

The lithium battery business continues to pay off, and revenue is on the fast track. 2022H1 achieved operating income of 946 million yuan, an increase of 174.21% over the previous year. Among them, 2022/Q2 achieved revenue of 612 million yuan, an increase of 326.37% over the previous year. The rapid increase in revenue is mainly due to the continued expansion of the lithium battery sector. 2022H1's lithium battery sector achieved revenue of 831 million yuan, an increase of 194.02% over the previous year; petrochemical design revenue was 113 million yuan, an increase of 86.55% over the previous year.

Expenses were optimized during the period, but profitability continued to tighten. 1) Expense rate: The company's expense ratio for the 202H1 period was 11.08%, compared to -18.13pct. Among them, R&D, management, finance, and sales expenses ratios were -6.59, -6.56, -3.73, and -1.24 pct, respectively; 2) Gross profit margin: The gross margin of the 2022H1 company was 16.34%, compared to -7.76 pct over the previous year. Based on the combined effects, the company's net interest rate was 6.63%, -4.30 pct over the previous year. The company is currently in the stage of rapid business expansion, and profitability is under pressure. It is expected that as the company's business focus shifts to high-margin fields such as lithium battery equipment, equipment self-control rate increases, and profitability will steadily rise.

There are sufficient orders in hand, laying a solid foundation for the company's development. 2022H1 has signed a total of 2,136 million yuan of new contracts, including 1,999 million yuan and 147 million yuan respectively in the lithium battery and chemical sectors. 2022H1's contract debt was 858 million yuan, an increase of 217.88% over the previous year. Adequate orders on hand guarantee the company's development.

Lithium battery sector: expand anode materials and obtain large orders, and integrate key equipment in capital operations

Expanding from cathode to anode materials and signing large orders, many large-scale projects have continued to advance. In June 2022, the company signed an order for a 40,000 ton power energy storage battery anode material EPC project with Sichuan Haichuang Shangwei, with a contract price of 1.37 billion yuan, marking the expansion of the company's business into large-scale negative electrode projects. In addition to these projects, the company is currently focusing on projects such as the BASF Shanshan Changsha base phase II ternary material construction project, the Anhui Haichuang phase I 50,000 ton/year lithium iron phosphate plant EPC project, the Yibin Wanpeng Era Phase I 20,000 tons/year lithium iron phosphate plant EPC project, and the Dangsheng Technology Industry Base project with an annual output of 20,000 tons of lithium battery cathode materials smart factory project. Currently, various projects are progressing smoothly, and revenue is being confirmed in an orderly manner. Through years of development, the company has been widely recognized by customers, accumulated a large number of high-quality customer resources such as Dangsheng Technology, Betry, Anhui Haichuang, Guoxuan Hi-Tech, New Lithium, BASF Shanshan, Chengdu Bamo, Ningde Shidai, etc., and maintained long-term and stable cooperative relationships with them.

Capital Operation acquired Wuxi Baiqing to integrate key equipment in the lithium battery industry chain. In August 2022, Bailey Lithium and Wuxi Baiqing signed an “Equity Transfer Agreement” to acquire 60% of the target company's shares in cash consideration of 1.2 million. Wuxi Baiqing is deeply involved in the design and construction of external circulation lines for lithium battery positive and negative electrode materials industrial kilns. In particular, it has rich industry experience and technical advantages in the field of lithium battery anode materials. The company's mergers and acquisitions will expand negative terminal equipment, complement the advantages of the company's cathode equipment, and increase the company's production line equipment self-control rate.

Continue to promote R&D and innovation, and improve equipment and production line construction capabilities. The company's current R&D projects in the lithium battery field involve equipment manufacturing and production line optimization. Specifically, they include “R&D of kiln energy enhancement and protective gas recycling and waste heat utilization”, “R&D of high-purity manganese sulfate complete equipment for lithium batteries”, “R&D of intelligent lithium iron phosphate production line”, etc. The advancement of ongoing research projects will continue to improve the automation level of the company's production line and enhance future development potential. As of the end of June 2022, the company had a total of 168 patents, of which 19 new patents were obtained in 202H1.

Production of positive and anode materials for lithium batteries is rapidly expanding, and the equipment market space exceeds 100 billion dollars. The new production capacity plans of major cathode material manufacturers such as Rong Encyclopedia Technology, Tianjin Bamo, Dangsheng Technology, and Guizhou Zhenhua, and major anode manufacturers such as Guangdong Kaijin, Betry, Shanshan Technology, and Puterai were summarized. It is estimated that in 2022-2025, the total production capacity of cathode materials will be 4.796 million tons, and the total production capacity of anode materials will be added by 3,077 million tons. According to our estimates, the market space of cathode and anode material equipment manufacturers in 2022-2025 is 1245.0 billion yuan and 521.9 billion yuan respectively. As a leader in the production line and equipment of positive and negative electrode materials, the company will embrace the 100 billion market.

Other sectors: The chemical business gradually changed from EPC to production line design. Hydrogen industry R&D continues to promote long-term value. The chemical sector has strong inherent advantages, and uses production line consulting and design to anchor high additional links. The company is in a leading position in China in the chemical fields of synthetic fibers, synthetic rubber, and synthetic resins. Among them, the 10,000 tons/year localized metal-methoxymetholide epoxy device designed by the company was the only domestic device with the largest single production capacity in the world at the time. Currently, the company's research projects in the chemical field mainly include “600,000 tons/year caprolactam plant engineering technology research”, “170,000 tons/year thermoplastic elastomer device engineering technology research”, “170,000 tons/year high quality epoxy resin device engineering technology development”, etc., and continues to improve technical level through product development. The strategic positioning is gradually adjusted from engineering to focusing on consulting and design to promote gross margin improvement.

Research and development of core materials for hydrogen energy is advancing, and achievements in the fields of proton membranes and membrane electronics are beginning to show. Through independent development and integration of a new generation of high-temperature fuel cell proton exchange membranes (HTPEM) with phosphoric acid-doped polybenzimidazole (PBI) as the core, the molecular weight has been greatly improved compared with existing proton exchange membranes. Their mechanical strength, proton channel rate, and operating life have obvious advantages. Through research and development of core materials for hydrogen energy, the company gradually realized the localization replacement of fuel cells and the integration of the industry chain, and locked in the long-term value of the industry ahead of schedule.

Investment suggestions: The company is a leader in the field of lithium battery material production lines and equipment. Through independent R&D and capital operation, it has increased the equipment self-control rate and production line automation level, and has accumulated high-quality customers such as BASF Shan, Anhui Haichuang, and Dangsheng Technology, and its business scale has expanded rapidly. At the same time, the expansion of production of lithium battery positive and negative electrode materials manufacturers is expected to be 1245.0 billion yuan and 52.19 billion yuan respectively. The company will embrace the 100 billion market with its inherent advantages and industry position. The company is expected to achieve revenue of 30.99, 48.39, and 6.284 billion yuan respectively in 2022-2024, up +197.60%, +56.16%, and +29.86% respectively; the net profit of the mother returned to the mother was 2.45, 438, and 603 million yuan respectively, up +735.15%, +78.73%, and +37.77%, respectively. Corresponding to PE valuations for 2022-2024 were 28.59, 16.00 and 11.61 times, respectively, maintaining the “buy” rating.

Risk analysis

1) The expansion of downstream production of lithium battery materials fell short of expectations; 2) There are many accounts receivable over a long period of time, and there is a risk of bad debts; 3) The company's equity pledge ratio is high.