23Q1 performance is under short-term pressure, recycling and production expansion helps long-term growth

The company achieved operating income of 749 million yuan in Q1 2023, -20.66%/-32.13% year-on-month; realized net profit of -299 million yuan to the mother, an increase of -435.31% /loss over the same period. The month-on-month decline was mainly affected by fluctuations in industry prices. We maintain the company's 23-25 net profit forecast of 444/679/827 million yuan. Referring to the comparable company Wind's consensus forecast of 17 times the average PE value in '23. Considering the high boom in waste battery recycling, the company was given 18 times the target PE for 23 years, maintaining the target price of 20.98 yuan, maintaining the “buy” rating.

Affected by the decline in metal prices in the industry, performance is under phased pressure

The company achieved operating income of 749 million yuan in Q1 2023, -20.66%/-32.13% year on year; achieved net profit of -299 million yuan, an increase of -435.31% /loss over the same period; net profit after deducting non-return to the mother was -297 million yuan, an increase of -481.40% /loss over the same period. By business, the intelligent equipment/lithium battery recycling/recycling equipment/heavy machinery sectors accounted for 32.78%/35.24%/9.04%/22.36% of revenue respectively.

The sales/management/R&D/finance expense ratio for Q23 was 2.24%/8.99%/4.27%/2.34% respectively, which changed +0.89/+3.15/+0.24/+0.38pct over the full year of '22.

Q2 Production capacity is about to be released, and LFP recycling construction is speeding up

The pace of building the company's lithium battery recycling capacity has gradually accelerated. According to the company announcement, the company now has an annual processing scale of 50,000 tons of ternary batteries, and the first phase of the LFP battery recycling project of 50,000 tons is undergoing comprehensive online commissioning. The company expects Q2 to produce iron phosphate and lithium carbonate products one after another, reaching 80% of the planned production capacity in the second half of this year. The company expects an overall production capacity of 12,000 gold tons of cobalt-manganese-nickel and 0.75/11,000 tons of lithium carbonate/iron phosphate in '23. The company's production capacity level is leading the industry. With the further expansion of production capacity, the company's comprehensive competitive advantage will be further strengthened.

Recycling channels continue to improve, boosting overseas markets

In recent years, the overseas battery recycling market has continued to heat up. The company actively lays out overseas battery recycling markets, actively explores implementation paths such as waste entry and overseas factory construction, deeply binds superior overseas resources, and accelerates the actual implementation of cooperation projects, which is expected to achieve win-win cooperation in the field of lithium battery recycling overseas. On April 10, 2023, the company and Stellantis Group signed a memorandum of understanding. The two sides will continue to seek cooperation opportunities in various fields of the automotive recycling industry, including recycling and dismantling of used vehicles, remanufacturing and recycling of power batteries, and plan to jointly expand the power battery recycling business in overseas markets in the future.

Risk warning: sales of new energy vehicles fell short of expectations, project progress fell short of expectations, and industry competition intensified.