Incident: The company recently released its 2022 annual report and the first quarter report of 2023, achieving annual revenue of 8.54 billion yuan, +32.5% year on year; achieving net profit of 670 million yuan to the mother, +33.1% year on year. 23Q1 achieved revenue of 2.00 billion yuan, +0.6% year on year; net profit of the mother was 170 million yuan, +65.0% year on year. Revenue was -10.0% month-on-month, and net profit of the mother was +13.7%.

Demonstrating the advanced level of management, overall sales of aluminum heat transfer materials and battery materials increased 23% to 328,000 tons. Despite the difficulties in production and logistics and transportation at the beginning and end of '22, the company still achieved a 23% increase in sales, and showed a forward-looking management level under this severe situation, implemented on-site production in the two places, coordinated production schedules between the Shanghai and Chongqing factories, and its strong insurance and supply capabilities further strengthened the company's position in aluminum heat transfer materials.

The benefits of advanced production lines at the Chongqing plant were shown, and the net interest rate increased to 8.5% in 23Q1. Relying on the latecomer advantage of new equipment, the complete set of equipment used in the Chongqing factory was designed in large volumes, which helped increase the yield of the company's products. The net interest rate of 23Q1 increased to 8.5% from 7.8% in '22.

It is planned to expand production by 150,000 tons, and the new energy business is expected to become a new profit growth point. The “High-end aluminum foil strip project for new energy vehicles with an annual output of 150,000 tons” was included in the list of major projects in Chongqing in 2023. The project is expected to provide production capacity guarantees for the NEV business to increase the proportion of domestic trade sales to more than 1/3.

The company's aluminum heat transfer materials are mainly used in automobiles. Considering the slowdown in the growth rate of the automotive industry, we lowered the company's gross margin assumption. The company's 2023-2025 EPS is expected to be 0.79, 0.95, 1.07 yuan (originally 0.84 and 0.99 yuan in 23-24). Based on the valuation of comparable companies 19X PE in 2023, the purchase rating is maintained, with a target price of 15.01 yuan.

Risk warning

The production capacity release of the Chongqing factory fell short of the expected risk, the processing cost of aluminum sheet and foil fell short of the expected risk, the risk that the industry's production capacity was released too fast, the macroeconomic growth rate was slowing down, and the risk of repeated global epidemics.