3Q22 performance is in line with our expectations

Company announcement 1-3Q22 performance: revenue 2.101 billion yuan, year-on-year 37.97%; return to the mother net profit 306 million yuan, 7.86% year-on-year; deducting non-net profit 278 million yuan, year-on-year-0.28%. The results in the three quarters are in line with expectations.

Trend of development

The decline in processing fees affects unit profits, and shipments are steadily improving. Since the second quarter, lithium copper foil processing fees have continued a downward trend, and the company's unit profit has declined compared with the previous quarter, resulting in 3Q22 single-quarter gross profit margin falling 6.89ppt. In terms of capacity construction, according to the company's announcement, the company has completed a copper foil production capacity of about 24500 tons at the beginning of the year, with a planned production capacity of more than 50,000 tons. We expect the company's effective capacity to exceed 30,000 tons in 2023. The company's current capacity utilization remains high, and the new capacity is expected to lead to a steady increase in shipments, and with the capacity bottleneck gradually alleviated. We expect the company's customer structure to start the process of diversification.

The progress of equipment localization is leading, and the forward-looking layout of composite fluid collector materials. The company leads the industry in the localization of copper foil core equipment, and the equipment localization leads to a sharp decline in investment in the production line. The company's investment in 10,000 tons of copper foil is only about 400 million yuan, which is much lower than the industry average. In addition, according to the company announcement, the company newly established Wuhan Zhongyi New Materials Co., Ltd. specializes in the research of new composite materials. We believe that the composite current collector can increase the weight and energy density of lithium battery compared with pure foil, and has the potential to reduce the manufacturing cost and improve the safety of lithium battery, which is expected to be promoted in some application scenarios with higher safety requirements. As a leading company in mastering the core technology of electrolytic copper foil, the company has industrialization experience in equipment development and post-process coordination, and is expected to benefit from the increasing trend of composite collector permeability.

Profit forecast and valuation

Due to the decline in unit profit due to the decline in processing fees, we reduced the net profit of 2022LPG by 11.2% to 400 million yuan / 521 million yuan.

The current share price corresponds to a price-to-earnings ratio of 18.1 times 2023 / 13.9 times earnings.

Maintain the outperform industry rating, but due to the lower earnings forecast, we lower our target price by 12.3% to 93.00 yuan corresponding to 23.5 times 2022 price-to-earnings ratio and 18.0 times 2023 price-to-earnings ratio, which has 30% upside compared with the current stock price.

Risk

The risk that the sales of new energy vehicles fall short of expectations, the competition pattern of the industry aggravates the risk, and the price of raw materials fluctuates sharply.