Incident: The company released its 2022 annual report. The company achieved operating income of 4.641 billion yuan in 2022, +65.50% year on year; achieved net profit of 521 million yuan, -5.36% year on year; net profit after deducting non-return to the mother was 516 million yuan, +3.69% year on year. On a quarterly basis, the company achieved revenue of 1,360 million yuan in 22Q4, +66.43%/+0.94% over the same period; the net profit of the mother was 83 million yuan, -46.82%/-44.67% over the same period last year.
The company released the first quarter report of 2023. 23Q1 achieved revenue of 994 million yuan, +2.2%/-27.64% over the same period last year; the net profit of the mother was 37 million yuan, -78.87%/-58.48% over the same period last year.
Copper foil production and sales were booming in '22, and the decline in processing fees in 23Q1 was under pressure. In '22, the company achieved production of 52,900 tons of copper foil, +88.21% year on year; sales reached 491,000 tons, +76.61% year on year. Among them, lithium foil and standard foil revenue were 4466/174 million yuan respectively, gross margin was 20.4%/5.4% respectively, year-on-year -9.8/-22.8 pct. In '22, the profitability of a single ton declined mainly due to increased competition in the industry. We estimate that the company shipped about 47,000 tons of lithium foil for the year 22, and the net profit per ton was about 11,000 yuan/ton. Of these, 22Q4 lithium foil shipments were about 14,000 tons, and the net profit per ton was about 0.61 million yuan/ton. Downstream demand entered the off-season in 23Q1, when the company's capacity utilization rate was low and customers removed inventory, and lithium foil processing fees were drastically reduced. We estimated that 12,000 tons of lithium battery copper foil were shipped in 23Q1, and the net profit per ton was about 30,000 yuan/ton.
With the recovery of downstream demand, the company's capacity utilization rate increased, and net profit per ton gradually recovered. It is estimated that in '23, more than 70,000 tons of lithium foil will be shipped, with a net profit of 0.5-60,000 yuan/ton per ton.
The expansion of production at major bases is progressing steadily, and it is expected that shipments from actively expanding customers will continue to rise. The company's annual production capacity of copper foil reached more than 50,000 tons at the end of '22, and subsequently focused on promoting the construction and commissioning of bases in Baidu, Jiangxi, and Ningde. Among them, Guangdong Jiayuan, a joint venture with Ningde plans to have an annual production capacity of 100,000 tons. It has progressed smoothly since construction began in June '22. It is expected that the first phase will begin production in the second half of '23. The company signed a procurement memorandum with Ningde Times. It is expected to purchase 20,000 tons for the full year of '23, and there is strong certainty that shipments will be shipped throughout the year.
Investment advice: We expect the company's net profit to be 405/639/773 million yuan in 2023-2025, compared to -22.2%/+57.8%/+21.0%. The corresponding EPS will be 1.33/2.10/2.54 yuan respectively, maintaining the “buy” rating.
Risk warning: capacity construction falls short of expectations; industry competition intensifies; downstream demand falls short of expectations