Incident: The company released its 2022 annual report. The company achieved revenue of 2,895 million yuan in 2022, +31.81% year on year; achieved net profit of 413 million yuan, +8.32% year on year; net profit after deducting non-return to the mother was 359 million yuan, -4.19% year on year. On a quarterly basis, the company achieved revenue of 794 million yuan in 22Q4, +17.90%/+14.52% over the same period; Guimu's net profit was 107 million yuan, +9.67%/+28.77% over the same period last year. The performance was in line with market expectations. The company released the first quarter report of 2023. 23Q1 achieved revenue of 746 million yuan, +6.70%/-6.12% over the same period; the net profit of the mother was 45 million yuan, -57.88%/-58.30% over the same period last year.

Copper foil production and sales were booming in '22, and profitability was pressured in the short term due to falling processing fees in 23Q1. In '22, the company achieved production of 35,500 tons of copper foil, +48.74% year on year, with a capacity utilization rate of 118.72%; sales volume reached 32,200 tons, +40.45% year on year. Among them, sales of lithium foil and standard foil reached 2.29/0.92 million tons respectively, +69.53%/-1.41% over the same period last year, accounting for 71%/29% of the sales volume, respectively, and lithium foil accounted for +12pct. The company's lithium battery copper foil products are mainly ultra-thin lithium battery copper foils of 6 μm and below. We estimate that the company's net profit per ton of lithium foil for 2022 will be about 13,400 yuan/ton. Downstream demand for 23Q1 entered the off-season and increased customer inventory, and lithium foil processing fees were drastically reduced. We estimate that 23Q1 lithium battery copper foil was shipped 0.63 million tons, and the net profit per ton was about 0.55 million yuan/ton. The company currently has a production capacity of 42,500 tons, and another 37,000 tons are still being planned and constructed. We expect the annual shipment volume to be close to 37,000 tons, an increase of more than 60% over the previous year. Net profit per ton will gradually recover, and is expected to reach 0.7-80,000 yuan/ton throughout the year.

Deeply targeting large customer shipments has increased with strong certainty, and new products such as composite copper foil have opened up incremental space. The company cooperated deeply with Ningde Shidai, the world's largest power storage battery manufacturer, and the company's shipments are expected to rise simultaneously with the increase in battery sales for major downstream customers. The company attaches great importance to R&D investment. It invested 109 million yuan in R&D in '22, +34.29% over the same period. The company actively developed new high-performance products and laid out high-end composite copper foil. As downstream demand gradually stabilizes, the company's performance is expected to continue to increase, and the company's long-term development is optimistic.

Investment advice: We expect the company's net profit to the mother in 2023-2025 to be 366/602/801 million yuan, compared to -11.5%/+64.7%/+33.1%. The corresponding EPS is 3.62/5.96/7.93 yuan respectively, maintaining the “buy” rating.

Risk warning: capacity construction falls short of expectations; industry competition intensifies; downstream demand falls short of expectations.