Event

Xiangtan Dianhua announces its results in 2019 and the first quarter of 2020.

German Nano (002125.SZ) released its annual report for 2019. During the reporting period, the company realized operating income of 1.21 billion yuan, an increase of 12.14% over the same period last year; net profit belonging to shareholders of listed companies was 67.9 million yuan, down 3.88% from the same period last year; net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 70.4 million yuan, up 1.02% from the same period last year; basic earnings per share is 0.12 yuan.

The company disclosed its quarterly report for the first quarter of 2020. During the reporting period, the company realized operating income of 206 million yuan, down 20.26% from the same period last year; the net profit belonging to shareholders of listed companies was 5 million yuan, down 71.91% from the same period last year; and the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 4.9 million yuan, down 71.51% from the same period last year.

The company's main business includes battery material business and sewage treatment business. Battery material business covers electrolytic manganese dioxide, lithium manganate, manganese sulfate and other manganese electrode / manganese salt products, and through shareholding Hunan Yuneng cut into the field of lithium iron phosphate and ternary positive electrode; sewage treatment business has rigid characteristics, the existing sewage treatment capacity of 210000 cubic meters per day.

Brief comment

Increase in production and sales of battery materials, effectively contribute to revenue

In 2019, the company's battery materials business achieved an operating income of 988.9494 million yuan, an increase of 19.34 percent over the same period last year; the company produced 109970 tons of battery materials (including 6742 tons of high-purity manganese sulfate), an increase of 30.10 percent over the same period last year; and sold 101500 tons of battery materials (including 6736.17 tons of high-purity manganese sulfate), up 19.07 percent over the same period last year. During the reporting period, the company Jingxi electrification annual output of 20,000 tons of high-performance lithium manganate cathode material project has been completed and put into production, the new production capacity has been released.

Sewage treatment capacity increases, sewage treatment performance improves

In 2019, the company completed a total of 84.2134 million tons of sewage treatment, an increase of 6.24% over the same period last year, and the effluent quality indicators reached the first-class A standard of the National Urban sewage treatment Plant Pollutant discharge Standard GB18918-2002). For the whole year, the operating income of the sewage treatment business was 111.3665 million yuan, an increase of 8.68 percent over the same period last year, and the net profit was 39.215 million yuan, an increase of 74.37 percent over the same period last year. The scale of sewage treatment is planned to be continuously expanded.

Hunan Yuneng, a shareholding company, has achieved high growth.

In 2019, Hunan Yuneng New Energy, which owns 16.07% of the company, achieved an operating income of 521 million yuan and a net profit of 65 million yuan. Sales of lithium iron phosphate for the whole year were 11900 tons, an increase of 226.55 percent over last year. According to high-tech lithium electricity statistics, shipments of lithium iron phosphate materials in 2019 were 88000 tons, an increase of 29.3 percent over the same period last year. The cumulative installed capacity of lithium-ion power batteries for new energy vehicles is about 62.38GWh, of which lithium iron phosphate installed is 19.98GWh, accounting for 32.03 percent. The market share of lithium iron phosphate of Hunan Yuneng new energy is about 13.5%. In 2019, Yuneng New Energy developed rapidly, and its production capacity gradually expanded. In terms of quality, it passed the supervision and audit of ISO14001 environmental management system, ISO9001 quality management system and the annual supervision and audit of IATF16949 automobile quality management system. Guangxi Yuneng, a wholly-owned subsidiary, successfully passed the ISO9001 quality management system certification. Yuneng New Energy is a supplier of lithium iron phosphate cathode materials for leading power battery enterprises such as Ningde era and BYD.

Manganese electrode materials and sewage treatment business are expected to develop steadily.

Affected by COVID-19 's epidemic situation, the total market demand for electrolytic manganese dioxide has declined in the short term, but the resumption of work and production continues to advance, it is estimated that the epidemic situation is a temporary impact, the company's product competitiveness is strong, the quality is stable, and is expected to continue to contribute to the performance.

The company's sewage treatment business has a clear franchise area, which is exclusive within the granted franchise area; it has relatively stable income, profit and cash flow, which can bring stable income for the company.

Lithium iron phosphate market share or high growth in 2020, the company is expected to benefit from the industry trend of 2020 new energy vehicle subsidy scheme has been issued, vehicle life 300km, 0.9 times the adjustment factor corresponding to the battery system energy density 140Wh/kg, power consumption indicators update do not affect the relative subsidy acquisition capacity of lithium iron phosphate models. Non-replacement models worth more than 300000 yuan cannot be subsidized, prompting Tesla, Inc. to consider speeding up the process of switching the technical route from standard battery life upgraded Model 3 to lithium iron phosphate battery. In addition, a number of models such as BYD Han, SAIC Roewe Ei5, BAIC EU5 and Euler IQ will be launched / will be launched in 2020, and the performance-to-price advantage of lithium iron phosphate positive pure electric passenger cars is expected to be reflected. The state plans to accelerate the electrification of public transport and specific areas (public service, urban public transport, road passenger transport, rental, network contract, sanitation, urban logistics and distribution, postal express, airport, port, mine). The safety and cost advantages of lithium iron phosphate are also expected to be further brought into play. The company participates in Hunan Yuneng, and the customer structure is high-quality: Ningde Times is the preferred supplier for domestic new energy automobile manufacturers, and the supply of lithium iron phosphate battery Tesla, Inc. can be expected; one of the key models of BYD this year is Han EV,C-class sedan positioning, up to 605km operating conditions, outstanding safety, etc. all make this model have the potential of popular style. Hunan Yuneng may achieve high sales growth and deeply benefit from the growth of the industry.

Investment advice:

It is estimated that the company's net profit from 2020 to 2021 will be 1.08yuan and 210 million yuan, an increase of 60% and 50% over the same period last year. Give the company a buy rating with a 6-month target price of 10.5 yuan.

Risk Tips:

The competition of manganese battery industry intensifies; the production and sales of new energy vehicles in China fall short of expectations; the development of lithium iron phosphate models and the rhythm and sales of new products on the market are not as expected; the price reduction pressure of lithium iron phosphate power battery is higher than expected.