Incident: The company announced that it received an order of 3.9 billion yuan (tax included) from Mianyang Gaoxin Exxon New Energy Technology Co., Ltd., corresponding to equipment orders over 3 GWh.

Key points of investment

A strategic cooperation has previously been reached with Exxon New Energy. This order marks the gradual landing of orders for energy storage lithium battery equipment from the two parties: Exxon New Energy is a new player in energy storage batteries. The main products include square lithium iron phosphate, large round ear cylinders, and sodium ion batteries. In November 2022, Hanchuan reached strategic cooperation with Exxon New Energy in various areas: (1) Exxon placed no less than the first batch of 3GWh lithium battery equipment orders from Hanchuan to Hanchuan, and priority was given to Hanchuan equipment procurement in the subsequent 50GWh investment; (2) Exxon and Hanchuan jointly developed Hanchuan equipment in the subsequent 50GWh investment; (2) Exxon and Hanchuan joined forces to develop Hanchuan equipment All-pole large cylindrical production line, priority is given to purchasing Hanchuan equipment; (3) Exxon is introducing customer resources for Hanchuan's power exchange business. At the same time, Hanchuan's power exchange business plans to purchase 0.5 GWh batteries from Exxon in 2023 and 3 GWh batteries from 2023 to 2025; (4) the two parties will cooperate on energy storage-related products.

Energy storage is expected to become the next important growth point for lithium battery equipment. Hanchuan big cylinder equipment already has reserves: (1) Large-scale energy storage tends to use large-capacity square batteries, and large storage emphasizes costs. Large batteries of 280Ah and above have a natural cost advantage and higher volumetric energy density; household energy storage favors large cylindrical batteries. Household energy storage favors large cylindrical batteries. Household users place higher demands on flexible serial and parallel connections of large cylindrical batteries. The flexible grouping advantage of large cylindrical batteries is more obvious and the capacity is higher. (2) Hanchuan has established cooperative relationships with companies such as Yiwei Lithium Energy, and has independently developed cylindrical capacity all-in-one machines, 4680 large cylindrical capacitors and supporting equipment, etc. In the future, it is expected that all of the central and rear equipment for 4680 large cylindrical batteries will be self-manufactured, fully benefiting from the rapid expansion of the energy storage market.

The production capacity of power exchange equipment has increased rapidly, opening up new growth space: (1) The current power exchange model has been recognized, especially in the commercial vehicle sector. We expect that the number of power exchange stations built in 2025 will exceed 16,000, with a corresponding investment of nearly 40 billion yuan in additional equipment. Hanchuan has a clear first-mover advantage. We expect the company to receive nearly 1 billion new orders for power exchange equipment in 2022 and 2 billion yuan in 2023. (2) At the end of 2022, the production capacity of the company's current power exchange equipment bases in Zhuji and Suzhou reached 680 sets. Production capacity is expected to reach 1,500 units by the end of 2023, and is expected to be close to 3,000 units in 2024. Hanchuan's production capacity has increased rapidly. The main reason is that components are centrally produced and then sent to complete machine bases such as Inner Mongolia for assembly, greatly improving production efficiency.

Profit forecast and investment rating: Considering the impact of the epidemic, we expect the company's net profit to the parent for 2022-2024 to be 1.3 (previous value 1.5, down 13%) /2.5 (previous value 3, down 17%) /4 (previous value 4.3, down 7%), respectively. The corresponding PE was 56/29/18X respectively, maintaining the “increase in holdings” rating.

Risk warning: Downstream production expansion falls short of expectations, and new business development falls short of expectations.