Net profit of 23Q1 was 37 million yuan, downgraded to the “increase in holdings” rating of 23Q1, revenue of 994 million yuan (yoy +2.20%, qoq -27.64%), and net profit of Gimo was 37 million yuan (yoy -78.83%, qoq -55.52%). Considering the decline in the prosperity of the copper foil processing industry, we lowered the copper foil processing fee assumption, and based on the company's 23Q1 actual gross margin increase in cost per ton assumption, it is estimated that the company's net profit for 23-25 was 4.59/683/1,070 million yuan (previous value of 638/879/1,321 million yuan), which is comparable to the company Wind's consistent expectations of PE (23E) 17.5X. Considering that the company is a leading enterprise and production capacity is released quickly, we slightly raised the company's valuation premium in a market where competition is intensifying. In '23, 26XPE, the corresponding target price was 39.23 yuan (previous value of 50.28 yuan), which was downgraded to the increase in holdings rating.
Profitability continues to be under pressure. The gross profit margin and net interest rate fell 19.39 and 14.34% year-on-year respectively. In the first quarter of '23, the company's copper foil processing fees continued to decline due to market conditions. Profitability continued to be under pressure. Gross sales margins and net margins of 0.75/ 3.73% (yoy-19.39/-14.34pct, qoq-0.01/-2.34pct). As a result, the company's copper foil sales increased year-on-year, but the net profit of the mother was -78.83% year-on-year. Furthermore, the corporate period fee rate was 9.24% (yoy-2.61pct, qoq+5.05pct). The company increased its R&D efforts. R&D investment was +26.84% compared to the same period last year, but R&D expenses fell year-on-year. The main reason was that the company implemented “Interpretation of Business Accounting Standards No. 15”, and part of the output during the R&D process was confirmed as inventory to reduce R&D expenses.
23Q1 Lithium battery copper foil demand is still growing, but competitive pressure is increasing
According to the China Automobile Association, China's NEV production and sales reached 1,656,000 and 1,586 million units respectively in 23Q1, up 27.7 and 26.2% year-on-year, with a market share of 26.1%. The cumulative load capacity of domestic power batteries was 65.9 GWh, a cumulative increase of 28.4% over the previous year. Downstream demand for lithium battery copper foil maintained a relatively rapid positive growth in 23Q1. However, according to SMM, the average processing cost of 6-micron lithium battery copper foil during the 23Q1 period was about 33,900 yuan (YOY -29.55%, QOQ -11.15%), which indicates that the supply and demand pattern of lithium battery copper foil is still deteriorating. We expect that because supply growth is faster than demand, processing fees will continue to decline, and it remains to be seen when the decline will stop.
The company has implemented a number of measures to reduce competitive pressure
The company actively developed new customers, adding a net of 60 new customers in '22, reaching 138 cooperative customers at the end of the period. In addition, the company actively adjusted the variety structure and signed a “Memorandum of Intent for High-End Lithium Battery Copper Foil Procurement Cooperation” with its main customer, Ningde Shidai. It is estimated that 4.5 micron and 5 micron high-end lithium battery copper foil will be purchased from the company throughout '23. Seek greater market share by developing new products and improving product quality. At the same time, the company closely followed the development trend of the copper foil industry, closely followed industry trends, set up a composite copper foil R&D team, upgraded copper foil R&D equipment, recruited composite copper foil technical talents, built a PET composite copper foil test workshop and purchased PET composite copper foil pilot equipment, and actively carried out R&D and verification work for PET, PP, PI and other composite copper foils.
Risk warning: Macroeconomics fell short of expectations, downstream demand fell short of expectations, and the final value and sustainability of the Fed's interest rate hike exceeded expectations.