The net profit returned to the mother in '22 was 521 million yuan, maintaining the “buy” rating in '22 with revenue of 4.641 billion yuan (yoy +65.5%), and the net profit of the mother was 521 million yuan (yoy -5.4%).

Considering the decline in the prosperity of the copper processing industry, we lowered the copper foil sales and processing fee assumptions. The company's net profit for 23-25 is estimated to be 638/879/1,321 million yuan (previous value of 1,265/1722-100 million yuan). Comparable with the company Wind's consistent forecast of PE (23E) 18.9X, considering that the company is a leading enterprise and production capacity is released rapidly, or that it may further break the gap with other companies in a market where competition is intensified, 24XPE for 23 was given, corresponding to the target price of 50.28 yuan (previous value 62.91 yuan), maintaining the purchase evaluation level.

As market competition intensified, copper foil processing costs dropped significantly, affecting gross margin performance. The company achieved production of 530,000 tons of copper foil in '22, of which ≤ 6 micron copper foil and > 6 micron copper foil achieved 44,000 tons of copper foil, respectively, +135.03% and -3.39%, respectively; achieved 49,000 tons of copper foil, of which ≤ 6 micron copper foil and > 6 micron copper foil achieved 40,000,000 tons respectively, +117.40% and -3.33%, respectively, compared with the same period last year. Affected by increased market competition, industry processing fees have declined markedly, affecting the company's gross margin performance. The gross margins of the company's lithium battery copper foil and standard copper foil in '22 were 20.41% and 5.42% respectively, compared to -9.82 pct and -22.81 pct respectively over the previous year.

The sharp fluctuation in the R&D expense ratio was mainly due to accounting standards. The gross profit margin and net interest rate were under pressure on the company's sales, management, finance, and R&D expenses in '22 to -0.03pct, +0.53pct, +0.20pct, and -4.10pct to 0.25%, 2.70%, 1.64%, and 1.14%, respectively. Among them, during the reporting period, the company stepped up R&D efforts and increased research and development of new products. The total R&D investment was 229 million yuan, an increase of 56.19% over the same period of the previous year; the amount resulting in R&D expenses was 53 million yuan. The reason was that the company implemented “Interpretation of Enterprise Accounting Standards No. 15” on January 1, 2022, and the confirmation that the relevant products or by-products produced during the R&D process complied with the requirements was due to inventory reducing R&D expenses, so the R&D cost rate dropped dramatically. The company's overall profitability is under pressure. The gross profit margin and net interest rate in '22 were -10.18 pct and -8.42 pct respectively to 19.85% and 11.21%, respectively.

Production capacity expansion continues to advance, and multiple projects have been put into operation

By the end of '22, the company had an annual production capacity of more than 50,000 tons of copper foil. The company's production capacity expansion continues to advance: every effort has been made to speed up the construction progress of the Jiangxi Jiayuan electrolytic copper foil project with an annual output of 35,000 tons and the Ningde Jiayuan high-performance copper foil project with an annual output of 15,000 tons. Trial production of the Jiangxi Jiayuan electrolytic copper foil project with an annual output of 20,000 tons began at the end of December '22, and trial production of the Ningde Jiayuan project with an annual output of 15,000 tons began in February '23. Shandong Jiayuan expanded a 5,000 ton production line on the basis of technical improvements to the original 5,000 ton production capacity, with a total production capacity of 10,000 tons. A joint venture with Ningde Shidai established Guangdong Jiayuan Shidai to invest in the construction of a high-performance electrolytic copper foil construction project with an annual output of 100,000 tons. It has progressed smoothly since construction began in June '22. Trial production of the first phase is expected to begin in the second half of '23. The company strives to achieve a production capacity of 100,000 tons of electrolytic copper foil in 23 years.

Risk warning: Macroeconomics fell short of expectations, downstream demand fell short of expectations, and the final value and sustainability of the Fed's interest rate hike exceeded expectations.