Core viewpoints

Revenue grew steadily and net profit declined year-on-year due to financial expenses. The company released a 2019 report that its operating income reached 1.21 billion yuan, an increase of 12.14 percent over the same period last year, and the net profit returned to its mother was 67.99 million yuan, down 3.88 percent from the same period last year. The net profit after deducting 70.45 million yuan was 1.02 percent higher than the same period last year. The increase in operating revenue was mainly due to the further increase in shipments of traditional EMD, with an increase of 100 million yuan in revenue, and about 20 million each in lithium manganate materials and sewage treatment business. The cost during the company period was 17.99%, an increase of 2.5 points, mainly due to a sharp increase in financial expenses (from 4.27% to 5.81%) and increased investment in research and development, resulting in a slight decline in net profit compared with the same period last year.

The gross profit margin remained high and the profitability of sewage treatment increased. The company's business gross profit margin in 2019 was 24.93%, of which lithium manganate, traditional EMD, manganese sulfate and sewage treatment business gross margins were 24.78%, 21.99%, 19.36% and 54.88%, respectively. The gross profit margin of the sewage treatment business increased by 5 points, contributing 39.21 million yuan to the net profit. We believe that with the release of the production capacity of 20,000 tons of lithium manganate, the commissioning of the new project with an annual production capacity of 50,000 tons of high-purity manganese sulfate and the commissioning of the third phase of Hexi sewage treatment, the company's performance increment will be guaranteed.

With the blessing of BYD blade and Ningde CTP, the iron lithium cathode of Yueneng new energy has entered the release period. The participating company shipped 11900 tons of iron lithium cathode of Yuneng New Energy, achieving an income of 522 million, an increase of 171% over the same period last year; the net profit was 65.58 million yuan, an increase of 92% over the same period last year, and the average net profit per ton of products was 55 million yuan. The downstream customers of the company are mainly Ningde era and BYD. Ningde era CTP iron lithium is expected to be widely used in B-terminal passenger cars, while the blade battery invented by BYD with iron lithium cathode makes the Han EV model with a range of 600km. We believe that with more iron-lithium passenger models on the market, the company will continue to release iron-lithium cathode materials.

Financial forecasts and investment suggestions

We forecast that the company's operating income from 2020 to 2022 will be 1.426 billion, 1.61 billion and 1.816 billion respectively, and the parent net profit will be 136 million, 166 million and 202 million respectively, and the corresponding eps will be 0.25,0.3,0.37 yuan respectively.

Risk hint

The new production capacity fell short of expectations; the price of lithium iron phosphate went down; and the demand for lithium manganate fell short of expectations.