Incident: On August 16, the company released its 2023 semi-annual report. In 2023, H1 achieved operating income of 10.246 billion yuan, up 9.35% year on year; net profit of 1,212 billion yuan, up 52.03% year on year; net profit after deducting non-return net profit of 1.25 billion yuan, up 88.4% year on year. 2023Q2 The company achieved revenue of 5.614 billion yuan in a single quarter, up 12.88% year on year and 21.21% month on month; net profit of return mother was 629 million yuan, up 45.84% year on year and 7.93% month on month.

The amount of photovoltaics continues to be emitted, and lithium batteries are rising against the market. 2023H1's photovoltaic business achieved revenue of 6.797 billion yuan, an increase of 15.95% over the previous year. Battery export sales were about 1.2 GW, module shipments exceeded 3.3 GW, and module shipments increased 50% year on year. The company's newly launched N-type TopCon module product technology is leading, and has strong support for the growth of the photovoltaic business. At the same time, due to a sharp drop in silicon prices upstream of the industrial chain, the gross margin of the company's 2023H1 photovoltaic business reached 24.32%, an increase of 11.09 pct over the previous year, and its profitability was outstanding. In terms of the lithium battery business, 2023H1 achieved lithium battery revenue of 940 million yuan, an increase of 15.45% over the previous year, and shipped 140 million lithium batteries, an increase of 36% over the previous year. The lithium battery industry achieved reverse market growth in revenue and shipments when market demand for downstream small power applications is sluggish, and the operating rate of enterprises in the industry is generally low. At the same time, the company's account storage products have been shipped overseas, and it is expected that they will rely on the company's overseas brand channel advantages to expand rapidly.

Magnetic devices are stable and stable, and the application field is targeted. 2023H1's magnetic materials business achieved revenue of 1.82 billion yuan, with shipments of 920,000 tons, the same year-on-year volume; the device business achieved revenue of 36,000 yuan, a slight decrease over the previous year. In the face of weak demand in some application fields of magnetic materials, the company's soft magnetic products focus on new energy vehicles and photovoltaic inverters, and shipments continue to increase; plastic magnetic products have achieved remarkable results in expanding in the automotive field, achieving performance growth. In terms of devices, the company has increased the expansion of vibration motors in non-mobile phone applications to hedge against the adverse effects of declining smartphone shipments in the mobile phone sector. Differentiated development and refined management help reduce costs and increase efficiency, and the company's magnetic device business is developing steadily.

Based in Hengdian, with a global perspective, overseas performance is outstanding. The company has a forward-looking international vision, and its market layout has blossomed. Currently, its products have been sold to more than 70 countries and regions around the world. 2023H1 achieved overseas revenue of 6.414 billion yuan, an increase of 30.21% over the previous year, accounting for 62.6% of the company's total revenue. The company's revenue focus has further shifted overseas. In terms of profitability, 2023H1's overseas gross margin was 25.48%, and the domestic gross margin for the same period was 19.35%. In terms of shipment distribution, the 2023H1 European market accounts for about 75% of component shipments, the Japanese and Korean markets account for more than 10%, and the domestic market for about 12%. Both the Japanese and Korean markets have more than doubled growth, and market expansion in Australia, India, and Latin America is beginning to show results. Since demand for PV modules is still increasing in overseas markets, and profitability is significantly superior to domestic ones, the company is expected to achieve both an increase in shipments and profits through a mature overseas layout.

The sharp increase in production capacity has created strong performance support. As of June 30, 2023, the company's magnetic materials industry has an annual production capacity of 220,000 tons of ferrite pre-fired materials, 162,000 tons of permanent magnet ferrite, 50,000 tons of soft magnets, and 25,000 tons of plastic magnets. It is the world's largest manufacturer of ferrite magnetic materials; the company's new energy industry has an internal production capacity of 8 GW batteries, 7 GW components and 7 GWh lithium batteries. The annual output of 6 GWh lithium battery project has been put into operation in June 2023, and is currently climbing the production capacity slope; the annual output of 22,000 tons of permanent magnets and 15,000 tons of soft magnets and 15,000 tons of soft magnets Magnetism has been partially implemented Production began; in the first half of 2023, the subsidiary Sichuan Dongci invested in a new high-efficiency battery project with an annual output of 12 GW in two phases, and the subsidiary Lianyungang Dongci invested in a new high-efficiency component project with an annual output of 5GW. The company currently has sufficient production capacity, and plans to expand production are continuing, providing strong support for various businesses.

Investment suggestions: As a leader in the magnetic materials industry, the company's photovoltaic and lithium battery businesses are developing rapidly, stable and growing, and have broad prospects. The company is expected to achieve revenue of 24.57 billion yuan, 31.034 billion yuan and 40,016 billion yuan respectively in 2023-2025, and realized net profit of 2.157 billion yuan, 2,637 billion yuan, and 3.376 billion yuan respectively, up 29.2%, and 28% year-on-year. The corresponding EPS is 1.33, 1.62, and 2.08, respectively, and the PE multiples corresponding to the current stock price are 12.4X, 10.2X, and 8.0X, respectively, giving a “buy” rating.

Risk warning: capacity expansion falls short of expectations; industry competition intensifies; downstream demand falls short of expectations; risk of fluctuations in raw material prices, etc.