Leading nickel-metal hydride batteries in China, with extensive experience in the hybrid field: Keliyuan was founded in 1998 and is mainly engaged in R&D, production and sales of advanced energy storage materials, batteries, electric vehicle energy packs, hybrid powertrain systems, etc. The company's current products mainly include battery products such as nickel-metal hydride batteries and lithium batteries, as well as electrode materials such as nickel foam and steel strips and corresponding electrode sheets. The company is the only supplier of Toyota HEV power batteries in China, and has gained deep accumulation in the fields of nickel-metal hydride batteries, hybrids, and battery management. Affected by business development and patent transfers, the company expects net profit to improve significantly in 2022. It is expected to achieve net profit of 190 to 230 million yuan for the whole year, an increase of 350.43%-445.26% over the previous year; deducting non-net profit of 1.10-150 million yuan, an increase of 576.99%-823.17% over the previous year.

Lay out lithium ore resources and improve the upstream layout of the lithium battery industry: In 2022, the company accelerated the upstream layout of the lithium battery industry. Through the acquisition of 51% of Jinfeng Lithium's shares and production line equipment related to Dingsheng New Materials, it obtained large-scale production capacity for lithium brine, a sellable lithium carbonate product, and further obtained four underground lithium mining rights through the acquisition of 70% of Donglian Company owned by Dingsheng New Materials. On the one hand, the company strengthened its voice through the deployment of upstream lithium resources, gradually joined with the midstream lithium battery manufacturing industry, which did not have lithium resources, reached strategic cooperation with Yacheng and Keheng in 2022, which is expected to further deepen the industrial chain. On the other hand, the company has re-explored and expanded the acquired lithium ore. The company plans to achieve a production capacity target of 10,000 tons of battery-grade lithium carbonate by mid-2023, and is expected to bring the company significant additional revenue after commissioning. At the same time, the company has also set up a lithium battery recycling business to strengthen the utilization rate of lithium resources and pave the way for the construction of a closed loop in the industrial chain.

Hybrid energy storage is gradually advancing, developing new growth points and helping to build industry alliances: the company develops hybrid energy storage solutions based on its own technologies such as nickel-metal hydride batteries, battery management, and digital twins. The technical solution tries to use the remarkable characteristics of nickel-metal hydride batteries, such as the high life span, high safety, and wide temperature range of nickel-metal hydride batteries to make up for the shortcomings and pain points of pure lithium battery energy storage systems. The company is actively promoting strategic cooperation with large state-owned power generation companies, and has now won bids for projects such as Hebei Yingli. It is expected that with the advancement of the company's energy storage technology plan, the company will simultaneously increase its voice in the upstream and downstream parts of the lithium battery industry to help the company's strategic intention to forge a lithium battery industry alliance.

The equity incentive shows the company's confidence: the company issued a stock option incentive plan in 2022 and completed the registration of stock option grants on December 30, 2022. A total of 11998 stock options were granted to 278 targets. The plan proposes performance assessments in the conditions for exercising authority, requiring that the revenue scale for 2023 should not be less than 6 billion yuan, the cumulative revenue value for 2023-2024 should not be less than 15 billion yuan, and the cumulative revenue value for 2023-2025 should not be less than 28 billion yuan. This equity incentive shows the company's confidence in the layout of the upstream and downstream lithium battery industries.

Investment advice: The lithium resource business laid out by the company is expected to bring significant revenue and profit growth to the company, and recognition from the downstream energy storage market is also expected to be gradually implemented in 23-24. It is estimated that in 2022-2024, the company will achieve operating income of 3,749, 65.49 billion yuan, and 9.741 billion yuan respectively, with net profit attributable to the mother of 202, 829 and 1,177 million yuan, corresponding to EPS of 0.12, 0.50 and 0.71 yuan respectively. First coverage, giving a “buy” rating.

Risk warning: Market competition intensifies, lithium mining or lithium ore prices fall short of expectations, and downstream demand expansion falls short of expectations.