The company is the leader of domestic PCB chemicals and one of the first five enterprises in the Ministry of Industry and Information Technology "New Energy vehicle waste Power Storage Battery Comprehensive Utilization Industry Standard conditions". The company's products mainly include PCB chemicals, lithium battery materials and chemical reagents, and the company began to lay out 5G materials in November 2018. PCB chemicals are divided into high purity chemicals and compound chemicals. High purity chemicals include hole metallization copper plating series, nickel gold plating series, tin plating series, etc.; compound chemicals include: completed surface treatment series, film removal series, chemical copper deposition series, etc., which are mainly used in integrated circuit interconnection technology.
The main products of lithium battery materials are ternary precursors and ternary materials, ferric phosphate, lithium ferric phosphate and lithium manganese phosphate, cobalt salt, nickel salt, manganese salt and so on. In November 2018, the company and Wu Changhong invested in Deloitte, laying out the field of 5G electronic communication materials.
With the decline in metal prices and the increase in operating costs, the company's net profit fell significantly in 2019. In 2018, the company achieved a net profit of 135 million yuan, and the company expects to make a net profit of 1345.86-20.1879 million yuan in 2019, down 90% from the same period last year. Mainly because the decline in the price of metal cobalt and lithium led to a decline in gross profit margin compared with the same period last year, the company laid out projects such as cathode materials for lithium batteries and comprehensive utilization of decommissioned power batteries, increasing R & D expenses, financial expenses and other costs. At present, the company begins to provide lithium battery echelon utilization products to China Tower Corporation to test the energy storage cycle of the base station in Guangdong, while the company's lithium iron phosphate construction project entered the verification stage in the first half of 2019, we believe that with the volume of lithium battery-related business, the company's net profit is expected to pick up.
Domestic sales of new energy vehicles are picking up, and downstream demand is expected to accelerate the release of lithium battery cathode materials. According to the statistics of the China Automobile Association, for the whole of 2019, the production and sales of new energy vehicles completed 1.242 million and 1.206 million respectively, down 2.3% and 4.0% respectively from the same period last year. In December 2019, sales of new energy vehicles reached 163000, an increase of 72% over the previous month. According to the company's semi-annual report, the company's annual production of 14000 tons of lithium battery cathode materials is expected to be put into production in September 2019. We believe that with the growth of new energy vehicle sales, it is expected to accelerate the release of lithium battery cathode materials.
Profit forecast and investment rating. We estimate that the EPS of the company from 2019 to 2021 is 0.05,0.43 and 0.54 yuan respectively. With reference to the valuation of comparable companies in the same industry, we think that the reasonable valuation range is 35-40 times PE in 2020, corresponding to a reasonable value range of 15.05-17.2 yuan, which is better than that of the big city.
Risk hint: downstream demand is lower than expected; the progress of the expansion project is not as expected.
