The company's performance is in line with expectations, and the lithium equipment business contributes core profits: the company's main business is mainly lithium-ion battery cathode materials and automatic lithium-ion battery production equipment in the upper reaches of the lithium battery industry chain. others include rare earth luminous materials, catalytic materials, light conversion materials and so on. The company issues the annual report for 2019 and the quarterly report for 2020. In 2019, the company achieved operating income of 1.84 billion yuan, down 16.45% from the same period last year, and the company's revenue scale declined, mainly due to the decline in product prices caused by the decline in raw material prices in the company's lithium cathode material business. The net profit was 30.4331 million yuan, down 42.91% from the same period last year. From the perspective of business, the company's operating income of lithium cathode materials was 909 million yuan, down 37.75% from the same period last year, the proportion of revenue decreased by 16.91 pct, the gross profit margin increased by 1.13 pct, and the operating income of lithium-ion battery automatic production equipment reached 805 million yuan, up 34.86% from the same period last year. The revenue share increased by 16.64 pct, and the gross profit margin decreased by 6.33 pct. In addition, the company's operating income of rare earth luminescent materials reached 6353.43 yuan, down 31.95% from the same period last year. The total expenses during the company period were 183 million yuan, of which sales expenses increased by 23.77% over the same period last year, and management expenses increased by 15.04% compared with the same period last year. This is mainly due to the increase in the sales scale of Haoneng Technology, a subsidiary, and the company's R & D expenditure reached 102 million yuan, an increase of 8.54% over the same period last year. The gross profit margin of the company was 16.85%, up 1.19 pct from the same period last year, and the net sales profit rate was 1.63%. The net operating cash flow of 0.81 pct; decreased by 321 million yuan, an increase of 668.54% over the same period last year, mainly due to the increase in operating cash flow caused by strengthening the management of accounts receivable and inventory in the current period. The company's operating income in the first quarter of 2020 was 267 million yuan, down 30.21% from the same period last year, and the net profit was 8.133 million yuan, down 63.5% from the same period last year. The decline in operating income and net profit was mainly due to the epidemic, and the general delay in the return to work of customers downstream of the company, which had a certain impact on the company's product sales; the net operating cash flow was-89.0615 million yuan, down 681.87% from the same period last year. The company's expenses during the first quarter were 25.6504 million yuan, of which sales expenses decreased by 66.35 percent compared with the same period last year, management expenses decreased by 29.61 percent, and the company's R & D expenditure in the first quarter was 19.1325 million yuan, an increase of 15.36 percent. The company's sales gross profit margin was 14.06 percent, down 1.99 pct from the same period last year, and the net sales profit rate was 3.04 percent, down 2.8 pct from the same period last year. In the future, the company will continue to strengthen research and development, promote more new products to achieve breakthrough results, strengthen the status of the company's industrial chain, and strive to achieve the rise of performance.

Lithium power equipment business has grown steadily and continued in-depth cooperation with Ningde era: on March 11, the company announced that Haoneng Technology, a wholly-owned subsidiary, had received purchase orders for German lithium power equipment in Ningde era. Ningde Times will purchase 20 "cold-pressed pre-striping machines" for its German production base, and as of the announcement date, the company has received orders for 6 "cold-pressed pre-striping machines". The company said that the lithium power equipment supply order contract with Ningde era accounted for more than 50% of the company's audited main business income in the most recent fiscal year, and the absolute amount was more than 100 million yuan. Haoneng Technology is the leading equipment in the front section of lithium electricity, and its independently developed new high-speed wide-width double-layer extrusion coating machine surpasses the imported equipment of Japan and South Korea in data, and has obvious advantages in import substitution. Since the acquisition of Haoneng Technology in 2016, the company has continued to cooperate deeply with Ningde Times. In 2019, the product sales in Ningde era reached 432 million yuan, accounting for 23.47% of the company's total annual sales. At present, the base planning of the company's lithium power equipment has been adjusted, and the strategy is to plan and build new bases in Yingde and Liyang, in which Liyang subsidiary has been set up and is currently carrying out pre-project design planning. As the global lithium power industry enters a new production cycle, major lithium battery manufacturers are competing to expand production. As a lithium "material + equipment" supplier, the company has obvious competitive advantages in the industry and is expected to fully benefit.

The business scale of lithium cathode materials has declined, and the company actively distributes high nickel three yuan: the company's operating income of lithium cathode materials reached 909 million yuan, down 37.75% from the same period last year, the proportion of revenue decreased by 16.91 pct, and the gross profit margin increased by 1.13 pct. The decline in revenue scale of cathode materials is mainly due to the decline in product prices caused by the decline in raw material prices. In recent years, with the rapid development of ternary material technology, its advantages of high density and high cycle life are becoming more and more prominent, and the proportion of cathode material shipments is increasing year by year. According to the research data of the High Industrial Research Institute of Lithium electricity (GGII), in 2019, global shipments of ternary cathode materials were 343000 tons, an increase of 44.7 percent over the same period last year. China shipped 404000 tons of lithium cathode materials, an increase of 32.5 percent over the same period last year, of which 192000 tons were shipped, an increase of 40.7 percent over the same period last year.

The company's existing cathode material production capacity is about 11,000 tons / year, of which the Anglo-German base has a high-end high-nickel ternary production capacity of 6000 tons / year. In addition, the Anglo-German base is under construction of 5000 tons / annual high-nickel ternary production capacity. During the reporting period, the company's main materials research and development focus included the research and development of forward-looking technologies such as high nickel ternary 9 series, lithium rich manganese based cathode materials, power high nickel ternary cathode materials, high voltage lithium cobalt and other new products and performance improvement. With the slowdown of the decline of domestic new energy subsidies and the recovery of the industry as a whole, the company's lithium cathode material business is expected to reverse the decline and release profits.

Investment advice: the company's annual report and quarterly report are in line with expectations and are expected to fully benefit from the production expansion needs of leading lithium battery enterprises, and the company's lithium power "material + equipment" strategy is expected to release profits in the future. We predict that the EPS of the company from 2020 to 2022 is 0.37,0.48,0.60 yuan respectively, and the corresponding PE is 26.90,20.90,16.91times respectively. Maintain the recommended rating.

Risk hints: increased competition in the industry; major changes in new energy vehicle policy; and lower-than-expected capital expenditure of lithium battery manufacturers.