Events: The company released its 2019 annual report and 2020 quarterly report. In 2019, the company achieved operating income of 2,986 billion yuan, -15.73%; net profit of 24.01 million yuan, -89.09%; net profit after deduction of net profit of 6.2274 million yuan, -96.99% year-on-year. Among them, Q4 achieved operating income of 545 million yuan in a single quarter, -41.45% year-on-year, net profit of 366.637 million yuan, +374.98% year-on-year, and net profit of 21.7387 million yuan, net profit of 21.7387 million yuan, +416.91% year-on-year. In the first quarter of 2020, the company achieved revenue of 456 million yuan, -40.60% year-on-year, net profit of 8.3842 million yuan, +109.91% year-on-year, and net profit after deduction of 5,516,600 yuan, +106.37% year-on-year. The decline in the price of cobalt products had a major impact on performance in '19, and the cobalt business is expected to improve marginally in '20: the rapid decline in the price of cobalt products in 2019 led to a decline in the company's net realizable inventory value. In line with the principle of prudence, the company prepared 208 million yuan for inventory in 2019, which had a great impact on the company's profits. However, looking ahead to the company's cobalt salt business in 2020, we believe that negative factors such as the sharp drop in cobalt prices and inventory impairment in 2019 are unlikely to happen again. Mainly for the following two reasons: 1) Price level. As of May 6, 2020, the price of cobalt (Yangtze River Nonferrous Market) was only 242,000 yuan/ton. The price of cobalt is already at an all-time low, and there is very limited room for cobalt prices to continue to decline. 2) Supply and demand levels. Glencore's Mutanda mine announced the cessation of production at the end of last year. The estimated duration is two years. The mine accounts for about 20% of global cobalt production. The future supply of cobalt will shrink markedly, providing support for cobalt prices. Therefore, at this point in time, we believe that the overall trend of cobalt prices this year is expected to be better than last year, and it is likely that inventory impairment in 2019 will not occur again. The company's cobalt business is expected to improve marginally this year. Profitability has increased steadily, cash flow is good, and the company is optimistic about the company's development in 2020: According to the company's 2019 annual report, during the reporting period, the company achieved production volume and sales volume of 343,000 tons and 33,300 tons of new energy materials, respectively, with a year-on-year difference of +3.05% and +7.65%. The overall development situation of the new energy industry in 2019 was severe. Downstream demand declined, industry competition was fierce, and the company's gross margin of new energy materials declined. However, in the face of pressure, the company responded positively to changes in the market and policy environment. Through unremitting efforts, the company's net profit turned a loss into a profit in 2019, and its performance improved dramatically. In terms of gross margin, the company's comprehensive gross profit margin was 36.59% in the second half of 2019, up 18.98 pct from the first half of 2019, and product profitability rebounded sharply. Furthermore, in the first quarter of this year, despite being affected by the COVID-19 pandemic in China, the company achieved a good performance with a gross profit margin of 23.87%. Considering the current gradual decline in the impact of the COVID-19 pandemic in China, the company's performance is expected to continue to improve throughout the year. On the other hand, as of the end of 2019, the company's net cash flow from operating activities was 1,041 billion yuan, +75.57% over the same period last year. The sharp increase in cash flow was mainly due to the company's strengthened control over the size of inventory and accounts receivable, and the cash turnover cycle became shorter. We believe that at this point in time, the company's profitability is still improving steadily, and good cash flow is also providing impetus for the company's continued development this year. Overall expectations for new energy vehicles in 2020 are improving, fixed increase plans are combined with production capacity and production capacity continues to be released, and the company's growth path is gradually opening up: in 2019, the annual sales volume of new energy vehicles in China was 1.206 million units, a decrease of 4.0% over the previous year, but the monthly sales volume in December reached 163,000 units, an increase of 71.4% over the previous month, the highest point of monthly sales for the whole of 2019. According to Wan Gang, the total decline in central and local financial subsidies in 2019 was more than 70%. Combined with the removal of fuel vehicles from China's five fuel vehicles, it led to negative growth in production and sales throughout the year. However, looking ahead to 2020, we are still optimistic about the development prospects of new energy vehicles, mainly for the following three reasons: 1) Sales level. Although sales of new energy vehicles declined to a certain extent due to the impact of the domestic epidemic in the first quarter, the impact of the current epidemic has gradually recovered, and the NEV sales side is expected to gradually recover. 2) Policy level. On April 23 this year, the four ministries and commissions announced the 2020 NEV subsidy policy, extending NEV subsidies until the end of 2020. Vehicles used in the non-public transportation sector were replaced by 10%, 20%, and 30% in 20-22, and public sector vehicles declined by 0%, 10%, and 20% in 20-22. The cost performance ratio of new energy vehicles was further highlighted. If Tesla's Shanghai plant volume is taken into account, the production and sales volume of new energy vehicles is expected to reach 1.3 million vehicles in 2020. 3) Permeability level. Looking at the long term, according to the “New Energy Vehicle Industry Development Plan (2021-2035)” issued by the Ministry of Industry and Information Technology, the penetration rate of new energy vehicles will reach 25% by 2025, and the potential market space for new energy vehicles is still huge. Currently, the company's strategic layout of new energy materials is progressing smoothly. The construction of the 10,000 tons of ternary precursor production capacity added in 2019 has been completed, and the production capacity of 10,000 tons of conductive agents continues to be built. This year, this part of the new production capacity is expected to continue to boost performance. Furthermore, at the end of February this year, the company also announced a fixed increase plan. It plans to raise no more than 1.72 billion yuan to develop precursors, conductive agents, cobalt intermediates, and cathode copper projects. The company aims to achieve 100,000 tons of ternary precursors and 20,000 tons of cobalt salt production capacity in the next three years. It can be seen from this that whether viewed from a short-term or medium- to long-term perspective, the development of the company's new energy materials business has good growth momentum. Investment suggestions: The company is positioned as a new materials enterprise that continues to grow. After listing, it has continued to expand the new energy materials business through investment and mergers and acquisitions over the past three years. At present, it has completed the integrated layout of new energy materials such as cobalt resources, cobalt salts, ternary precursors, conductive agents, and battery-grade lithium carbonate. In the future, with the development of the new energy industry and the release of new production capacity, the company will also enter a period of rapid growth. The company is expected to achieve net profit of 134 million yuan, 241 million yuan and 346 million yuan respectively in 2020-2022, an increase of 460.1%, 79.6% and 43.4%, respectively, and corresponding PE of 40.5, 22.6 and 15.7 times, respectively, maintaining the “recommended” rating. Risk warning: raw material prices fluctuate greatly; production capacity investment falls short of expectations; downstream demand falls short of expectations, etc.