Incident: Wanshun New Materials disclosed its 2022 annual report. The company achieved revenue of 5.834 billion yuan in 2022, an increase of 7.3% over the previous year, of which 04 achieved revenue of 1,554 billion yuan, an increase of 13.92% over the previous year and an increase of 3.67% over the previous year. In 2022, the company achieved net profit of 204 million yuan, an increase of 565,29% over the previous year. Among them, Q4 achieved 42 million yuan in a single quarter, an increase of 162.69% over the previous year, and a decrease of 1.84% over the previous month. Net profit after deducting non-recurring profit and loss in 2022 was 197 million yuan, up 464.57% year on year. Of this, net profit after deducting non-recurring profit and loss for the 04 single quarter was 39 million yuan, down 155.52% year on year and 7.84% month on month.

The aluminum processing business contributed to the main performance. The company's gross profit in 2022 was 509.4 billion yuan, of which the aluminum processing business accounted for 84.4% of the gross profit. 1) Sales volume: The company sold 101,300 tons of aluminum foil in 2022, of which Anhui Zhongji (which mainly produces aluminum foil for batteries) sold 27,300 tons of aluminum foil, and Jiangsu Zhongji (which mainly produces double zero foil” aluminum foil sold 74,000 tons. Affected by factors such as power battery production and the upcoming Spring Festival, 202204's battery aluminum foil sales were 0.65 million tons, down 22% from the previous month. 202204's double-drop sales volume was 192,000 tons, +5% from the previous month.) Gross profit per ton: According to our estimates, benefiting from factors such as the company's battery aluminum foil production and the rise in processing in the aluminum foil industry, the gross profit per ton of the company's aluminum processing business in 2022 was 3,233 yuan/ton, +42.24% year on year. Affected by factors such as the decline in Q4 electric bubble foil sales, the 202204 company's gross profit was 43 million yuan, -47.08% year on year and -76.05% month on month.

A pioneer in the functional film industry, the layout of composite copper foil has the advantage of business collaboration. 1) The company's functional films are mainly focused on high-barrier film fields such as food and drug packaging and photovoltaic backboards. The company's high-barrier film material production base was put into operation at the end of 2021, and production is expected to be reached in 2024. The high-barrier film production base plans 6 million square meters of high-barrier film materials for new display components in the optoelectronics field and 1,200 tons of high-barrier film materials for food and medicine packaging. At present, the high-barrier film developed by the company for use in portable photovoltaic products has begun to be supplied to downstream photovoltaic panel manufacturers. In addition, the company developed a recyclable single material (PP), a transparent high-barrier film that is resistant to cooking, and has also begun supplying customers. 2) The composite steel foil is being sampled. Functional films require comprehensive application of advanced technologies such as magnetron sputtering, vacuum evaporation, coating compounding, and precision cutting. The company has many sets of core equipment, such as multiple magnetron sputtering equipment and electron beam coating equipment. In terms of composite copper foil manufacturing, it has advantages such as technology, equipment and business collaboration. Samples have now been sent to downstream battery companies to continue to cooperate with customers to expand the length of rolls for verification.

Starting again, the aluminum foil faucet lays out the battery aluminum foil market in a vertically integrated manner. The company has been deeply involved in the industry for many years. Through mergers and acquisitions and capital increases and production expansion, it has formed an aluminum processing industry chain that extends vertically from aluminum sheet strip (aluminum foil billet) to aluminum foil and then extended to carbon foil coating. 1) Aluminum strip: The company accelerated the deployment of upstream raw materials and planned 130,000 tons of aluminum strip projects (including 80,000 tons of battery aluminum foil blanks) to further reduce costs. 2) Battery aluminum foil: The company currently produces 40,000 tons of battery aluminum foil. The second phase of the 32,000-ton project has entered the equipment installation stage, and the 100,000-ton power and energy storage battery aluminum foil project raised has also completed the main equipment order. Downstream battery cathode foil customers include Ningde Times, Ningde Bofa, Polyfluoride, Sunwoda, Youfoil Liangcai, Huzhou Tianfeng, etc. 3) Coated with carbon aluminum foil: In order to increase the added value of electric bubble foil, the company acquired Yuqiang in Shenzhen to lay out the field of deep processing of battery aluminum foil. At present, Yuqiang, Shenzhen currently has a production capacity of 3,700 tons and is preparing to build a 50,000 ton project.

Profit forecast and investment suggestions: Considering the impact of falling processing fees in the battery aluminum foil industry in Q23 and the delay in the commissioning of carbon-coated aluminum foil, we expect the company's net profit for 2023/2024/2025 to be 275/38/547 million yuan respectively (the value before 2023-2024 was 375/509 million yuan), corresponding to 2023-2025 PE 27/19/14X respectively, giving an “increase in holdings” rating.

Risk warning events: Fluctuations in prices of main products, fluctuations in raw material costs, changes in industrial policies, project progress falling short of expectations, risk of lower processing costs due to increased market competition, and risk of delays in the use of public information in research reports, etc.