2022 1-3Q results slightly exceeded our expectations
The company announced results for the 1st to 3rd quarter of 2022: revenue of 9.94 billion yuan, +329.3% year on year; net profit of 7.1 billion yuan per share, corresponding to profit of 1.25 yuan per share, compared to 264.6%, slightly exceeding our expectations. We believe it is mainly due to gross profit recovery brought about by declining prices of raw materials such as urea in the third quarter.
Among them, third-quarter results: revenue of 3,928 million yuan, +277.9%, +13.8%; net profit of 275 million yuan per share, corresponding to profit of 0.49 yuan per share, +472.7%, +24.8% month-on-month; gross profit margin of 19.4%, +4ppt month-on-month.
Development trends
The profit of lithium iron phosphate is stable, and production capacity investment brings development impetus. According to the company's announcement, 3Q22 sold 26,000 tons of lithium iron phosphate, +17% month-on-month, and the unit price of the product was -4% month-on-month. In terms of price, lithium iron phosphate is currently about 173,000 yuan/ton, which is +10.6% compared to the average for the third quarter, mainly due to the fact that the prices of raw materials such as lithium carbonate have returned to an upward channel. Looking ahead, we are optimistic that sales of new energy vehicles will be strong throughout the year, driving the lithium iron phosphate boom to continue. Due to the impact of the epidemic, we expect the company's additional production capacity of 120,000 tons of lithium iron phosphate in Sichuan and Shandong to be put into operation one after another in the fourth quarter. At the same time, the company is speeding up the construction of supporting iron phosphate production capacity and accelerating the degree of integration. We are optimistic that the company's revenue and profit will continue to grow in the second half of the year, as well as inventory revenue brought about by rising lithium carbonate prices.
Deploy lithium carbonate and strengthen the integration of the industrial chain. According to the company's announcement, the company and Yichun Times plan to cooperate to launch a lithium carbonate project with an annual output of 70,000 tons, the first phase of which will produce 30,000 tons of lithium carbonate per year. The company plans to transfer 70% of the shares of the joint venture held by Yichun Shidai at a price of RMB 1. We believe that the company's layout of lithium carbonate production is expected to further enhance industrial chain integration capabilities and enhance profit stability.
The price of urea, a raw material, has declined, and gross profit of automotive urea has steadily rebounded. The company's 3Q22 vehicle urea/coolant/vehicle maintenance products sales volume was -13%/-11%/-26% month-on-month. Mainly because the impact of the epidemic is still still ongoing, demand growth in China 6 fell short of expectations. However, in 3Q22, the price of vehicle urea/coolant/vehicle maintenance products was +23%/+28%/+25% over the previous month, while the price of raw material urea was -19%, and overall profit gradually recovered. Looking ahead, we are optimistic that as the impact of the epidemic is gradually mitigated, the automotive urea business will continue to grow at a high rate after the normal promotion of China 6. At the same time, agricultural demand for urea in the second half of the year is expected to stabilize, and overall prices are expected to stabilize. We are optimistic that profits from the company's automotive urea products will continue to recover.
Profit forecasting and valuation
Due to declining prices of raw materials such as urea, we raised our 2022 net profit by 11.6% to 909 million yuan, keeping our profit forecast unchanged for 2023. We switched our valuation to 2023, and the current stock price corresponds to 15.3 times the price-earnings ratio of 2023. It maintains an outperforming industry rating, but as the market's valuation center for the new energy materials industry is declining, we lowered our target price by 22% to 35 yuan, corresponding to 20.2 times the price-earnings ratio in 2023, which is 32.7% upward from the current stock price.
risks
The project is not progressing smoothly, and downstream NEV sales are poor.
