Events:
The company will increase the capital of Zhuhai Zhongli New Energy with self-raised funds of RMB 50 million, which will further enhance the financial strength and operating capacity of Zhongli New Energy. It is conducive to the expansion of its lithium battery cascade utilization, recycling, disassembly and remanufacturing business.
Comments:
The recession in the industry has led to a sharp decline in the company's performance. The company's traditional business is PCB chemicals, while the price of metals such as cobalt continues to fall, resulting in a decline in revenue and profits. The company's new energy business is in a climbing period, but this year, as the new energy vehicle industry is also at a low ebb, the price of cathode materials continues to decline, which does great harm to the company's new business development. The decline in gross profit margin is not only due to the industry environment, but also due to the inclusion of spodumene projects in the statement and the low gross profit margin during the climbing period of new energy business.
The trend of capacity transfer remains unchanged, and the market share of PCB chemicals business is expected to increase. With the continuous promotion of production capacity transfer in the PCB industry, domestic substitution has become a trend, which is expected to help the domestic PCB industry pick up. At the same time, stricter environmental regulation is expected to gradually increase the concentration of the domestic industry. As the leader of domestic PCB chemicals, the company has a market share of 4% in 2017 and is expected to further increase its market share in the future. With the gradual introduction of new capacity, the company's PCB chemicals business is expected to continue to grow.
With the rise of new energy vehicles, the business of power battery production and recycling is about to blow out. From January to November 2019, the production and sales of new energy vehicles completed 1.093 million and 1.043 million respectively, an increase of 3.6% and 1.3% respectively over the same period last year. It is expected to pick up and maintain good growth in 2020, and the installation of power batteries will enter an explosive period in the future. At the same time, according to the 3-5-year life cycle of power battery, power battery recycling has entered a rapid start stage since 2018, and echelon utilization and ternary disassembly will have a bright future.
The company creates the lithium electricity cycle industry chain, opens a new chapter of growth. The company's advantage lies in the long-term accumulation of chemical processes such as separation and purification, which can be used as a basis for industrial extension. The company relies on innovative technology and mature raw material supply channels to form a synergistic effect, so as to quickly break through cathode material barriers and effectively reduce costs. At the same time, as one of the first five power battery recycling enterprises of the Ministry of Industry and Information Technology, the battery recycling demonstration line with a capacity of 1000 tons per month in Shantou is mature, and the long-term planned 200000-ton project will be gradually put into production. At the same time, the company has established recycling cooperation with a number of new energy vehicle companies, and jointly explored the echelon utilization of batteries with China Tower Corporation, so as to open up the industrial chain of "battery disassembly and recycling-resource recycling-cathode materials" and quickly occupy the commanding heights of the industry.
Investment and rating. We are optimistic about the company's layout in the new energy sector, but for industry reasons, we downgrade the company's 2019-2021 revenue to 1.877 billion yuan, 2.558 billion yuan and 3.106 billion yuan, net profit of 75 million 160 million yuan and 242 million yuan respectively, EPS of 0.20,0.43 and 0.65 yuan respectively, corresponding to PE of 62.1,29.1 and 19.3 times, maintaining the "prudent recommendation-A" rating.
Risk hint: the production of the project is not as expected, and the market competition of positive materials for power batteries is fierce.