Event: Wanshun Xincai announced the signing of a cooperation framework agreement with Ningde era. Anhui Zhongji of Wanshun New Materials Company signed a "Cooperation Framework Agreement" with Ningde Times. From January 1, 2023 to December 31, 2026, Anhui Zhongji promised to supply lithium aluminum foil to Ningde era, with a total minimum supply of 320000 tons, and the final supply and price shall prevail according to the subsequent specific orders of both parties.

Battery aluminum foil sales and production capacity up, the head of high-quality customers to bring sustainable growth as the middle and high-end packaging aluminum foil leader, Wanshun new materials in 2018 began to look forward to the layout of battery aluminum foil production expansion, gradually in the high-end imported equipment and fine production control to form their own advantages. At present, the company is rich in technology patent reserves, product elongation, width, yield and other performance is obviously in the lead, and the finished product rate has also reached a high level in the industry. The company accelerated the release of aluminum foil production capacity of Anhui Zhongji battery, with cumulative sales of 22Q1-3 reaching 20800 tons, of which 22Q1, 22Q2 and 22Q3 sold 0.52,0.73 and 8300 tons respectively, with 22Q2 and 22Q3 growing at a month-on-month growth rate of 40.4% and 13.7%, respectively. At present, the company is producing 40,000 tons of battery aluminum foil, and the second phase of the 32000-ton project is under construction according to the basic installation project, and the equipment has been ordered to be installed after the follow-up is in place; the planning and construction procedures for the third phase of 100000 tons of power and energy storage battery foil project and equipment selection bidding work have been carried out in an orderly manner. The company continues to develop battery aluminum foil, downstream customers have included Ningde era, polyfluorodo, Xin Wanda and other well-known battery manufacturers. This time, we signed a cooperation agreement with Ningde Times on the supply of lithium aluminum foil, with a minimum supply of 320000 tons in the four years starting from 2023. This cooperation also marks Ningde's recognition of the company's lithium aluminum foil quality and production capacity, and further validates the company's competitiveness in the field of aluminum foil for power batteries of new energy vehicles. In the future, the company's continuous cooperation with high-quality customers may bring continuous growth in the field of battery aluminum foil.

Composite copper foil accelerated the promotion of customer samples, high resistance diaphragm production capacity began to release the company's deep ploughing aluminum processing industry for many years, through industrial chain mergers and acquisitions and capital expansion, has formed a vertical integrated aluminum processing industry chain from aluminum strip to aluminum foil and then to coated carbon foil. In April 2022, Jiangsu Zhongji acquired a 51% stake in Shenzhen Yuqiang and cut into the layout carbon foil deep processing business. Shenzhen Yuqiang has an annual production capacity of 3700 tons, and the company has also set up Jiangsu Yuqiang to build a new energy carbon foil project with an annual production capacity of 50,000 tons, which is expected to be partially put into operation at the beginning of 23Q2. At the same time, the company's composite copper foil is also continuing to promote downstream customer sample delivery and process optimization work, the future development is expected.

In addition, the company's high-resistance diaphragm production capacity began to release, which is expected to reach production in 2024, in which the production base of high-resistance diaphragm is planned to produce 6 million square meters of new high-resistance diaphragm materials for display components in the optoelectronic field and 1200 tons of high-resistance diaphragm materials for food and pharmaceutical packaging. High resistance diaphragm products are used in photovoltaic, packaging, quantum dot display and other fields, in which the high resistance diaphragm developed by the company for portable photovoltaic products has begun to supply downstream photovoltaic panel manufacturers.

Investment suggestion: as the leader of middle and high-end aluminum foil manufacturing, the company actively expands the battery aluminum foil business and successfully enters the Ningde era and other high-quality customer supply chain system, which can grow in the future. We estimate that the operating income of Wanshun Xincai from 2022 to 2024 will be 68.05,84.77 and 10.592 billion yuan, up 25.15%, 24.56% and 24.95% over the same period last year, and the net profit will be 2.33,3.68 and 465 million yuan, up 630.20%, 57.78% and 26.51% over the same period last year, corresponding to PE 35.7x, 22.6x and 17.9x, maintaining the investment rating of Buy-A.

Risk hint: downstream demand is lower than expected risk; industry competition intensifies risk; raw material price fluctuation risk; project progress is not as expected risk.