2022 results are in line with market expectations

The company announced 2022 results: revenue of 6.758 billion yuan, +38.8% year on year; net profit of the mother was 202 million yuan, +751.0% year on year. That is, 4Q22's revenue was 2,477 million yuan, +67.8% year on year, +31.7% month on month; Guimu's net profit was 49 million yuan, +181.2% year on year and -53.7% month on month. It is consistent with the company's performance forecast and in line with market expectations.

The company released its 1Q23 performance forecast on April 14: Guimu's net profit was 100 million yuan to 120 million yuan, a year-on-year increase of 309.41%-391.29%, a sharp increase over 4Q22. Mainly because the cost of the company's modified plastic raw materials fell and gross margin rebounded; furthermore, in August 2022, the company completed a major asset restructuring of Haishida Power, and the energy storage business volume increased rapidly.

Development trends

The gross margin of modified plastics improved, and the main business grew steadily. In 4Q22, the average price of raw materials polypropylene/ABS/polyethylene/polycarbonate was -2.5%/-1.6%/2.8%/-11.1%, respectively. The downward trend continued in 1Q23, and the gross margin of modified plastics increased month-on-month. Furthermore, the company is actively deploying modified plastics for new energy vehicles, and domestic NEV companies are highly receptive to domestic material suppliers. We think it is expected that the company's modified plastics revenue will continue to rise.

Accelerate the deployment of energy storage batteries and actively enter the field of sodium electricity. According to the company announcement, in 2023, Hystar Power will add 1.3 Gwh and 6 Gwh energy storage plants to complete capacity expansion work. They are the “1.3 Gwh per year sodium ion and lithium ion battery digital factory project” and the “12 GWh square lithium-ion battery annual production phase I project”. The company plans to increase 1.08 billion yuan to support the expansion of Haishida's production; after the project is put into operation, it will help ease the delivery pressure caused by the company's insufficient energy storage capacity and full business orders. We expect the company's energy storage business to expand significantly in 2024. While continuously increasing energy storage production capacity, the company fully grasped market opportunities and deployed sodium-ion batteries ahead of schedule. This time, the 1.3 Gwh production line is an intelligent automated production line compatible with sodium and lithium batteries, which can quickly expand the company's business into the field of sodium electricity. After production is put into operation, it will focus on market fields such as backup power supplies, small energy storage and special vehicles.

Profit forecasting and valuation

As the company's new capacity construction progress was slightly lower than our expectations, we lowered our net profit in 2023 and 2024 by 14.3% and 4.1% to 584 million yuan and 964 million yuan. The current stock price corresponds to 25.5 times the 2023 price-earnings ratio and 15.5 times the 2024 price-earnings ratio. Maintaining an outperforming industry rating, the target price was lowered by 9.5% to 19 yuan, corresponding to 33.1 times the 2023 price-earnings ratio and 20.1 times the 2024 price-earnings ratio. There is room for an increase of 29.7% compared to the current stock price.

risks

Prices of raw materials have risen; the volume of energy storage batteries has fallen short of expectations; and the volume of ICT materials has fallen short of expectations.