Key points of investment

The company released the 2022 annual report and the first quarter report of 2023. The company achieved net revenue/net profit attributable to the mother/net profit of non-attributable to the mother of 85.45/666/645 million yuan in 2022, a year-on-year increase of 32.51%/33.11%/34.11%. In 2022, the company achieved 2,220/149 million yuan, an increase of 22.99%/9.58% over the previous year, and a decrease of 0.27%/28.37% over the previous year. In Q1 of 2023, the company achieved net revenue/return profit of 1,997/170 million yuan, an increase of 0.58%/65.03% over the previous year, and a change of -10.05%/14.09% over the previous month. The company's performance was in line with expectations.

Performance has been growing steadily, and the gross margin of our main products is stable. By business, the aluminum heat transfer business has always been the company's main business, accounting for more than 85%, followed by the battery material business, which increased from 2.34% in 2018 to 9.25% in 2022. In terms of gross margin, the gross margin of aluminum heat transfer materials is basically stable. The sharp decline in gross margin in the battery material business in 2022 is mainly due to the trend of high and then low aluminum prices in 2022. The company has many orders in hand. Using the “aluminum ingot price+processing fee” sales format, the purchase of a large number of semi-finished products in the first half of the year caused a sharp decline in gross margin.

A leader in the aluminum heat transfer industry, the production capacity of the Chongqing Phase II project reached 600,000 tons after it was put into operation. The company currently has a total production capacity of about 350,000 tons at its bases in Shanghai and Chongqing. After the completion of the Chongqing Phase II project, the company's production capacity is expected to reach 590,000 tons. The compound annual growth rate of the company's aluminum heat transfer material production/sales in 2018-2022 was 20.36%/20.53%. After the second phase of the project was put into operation, the company's production and sales growth rate is expected to be maintained.

Energy storage and AI servers open up room for growth. Based on advantageous markets such as automobiles and air conditioners, the company is actively paying attention to and exploring new markets for energy storage, 5G base stations, and big data centers. Among them, AI servers have higher cooling requirements and usually require liquid cooling. The company produces aluminum heat transfer materials that can be used in cold plate liquid cooling technology, and it is expected to open up new growth poles in the future driven by AI server applications.

Investment suggestions: The company currently has sufficient orders in hand, and there is still room for improvement in capacity utilization. In the future, after the Chongqing Phase II project is put into operation, it will help the company further increase its market share in new energy vehicles and other markets. We expect the company to achieve operating income of 109.92/128.12/14997 billion yuan in 2023/2024/2025, up 28.64%/16.56%/16.98%, respectively; Guimu's net profit is 10.17/11.88/ respectively 1,427 billion yuan, a year-on-year increase of 52.73%/16.80%/20.19%, respectively, and the corresponding EPS was 1.02/1.19/1.43 yuan respectively.

Based on the closing price of 13.56 yuan on April 28, 2023, the corresponding PE corresponding to 2023-2025E was 13.32/11.40/9.49 times, respectively. First coverage, giving the company a “buy” rating.

Risk warning:

The progress of the project fell short of expectations, risks such as rising aluminum prices and exchange rate fluctuations.